Student Loan is the most common way of paying for higher education in the US and UK. Many students dream of studying in good private colleges and universities for higher education. Private universities are expensive and most of the students cannot afford to go there. So most of them took student loans to finance their higher education, which means they graduated with student loan debt.
Your mental peace needs to pay your debts timely. If you’re considering paying your student loan debt early, this will save you from student loan regret.
Strategies to Pay Student Loan Faster
Here are 8 strategies to help you to achieve your financial goal.
Prioritize Paying high-Interest Rate Loan First (Avalanche Method)
If you have more than one student loan, focus on paying off loans with the highest interest rate first. By targeting the most expensive debt, you’ll minimize the overall interest you’ll pay in the long run.
Imagine you have multiple student loans, each with different interest rates. By focusing on the loan with the highest interest rate, you’re essentially targeting the most expensive debt in terms of accruing interest.
When you make payments on your loans, a portion of the money goes toward interest charges, while the remainder reduces the principal balance. The higher the interest rate, the more money you’re losing to interest each month.
By tackling the high-interest rate loan first, you’re minimizing the amount of interest that accumulates over time. This helps you save money in the long run and accelerates your progress toward becoming debt-free.
Let’s say you have two loans: Loan A with an interest rate of 6% and Loan B with an interest rate of 3%. If you focus on Loan A and make extra payments towards it, you’re effectively reducing the principal balance and the interest that compounds on that loan. Meanwhile, continue paying the minimum amount for Loan B.
Once Loan A is paid off, you can then direct the additional funds towards Loan B. By eliminating the high-interest debt first, you’ll have more financial resources to tackle the remaining loans faster.
This approach helps you gain momentum and motivation as you see progress being made. Plus, it frees up more money that can be allocated towards other financial goals or even saved for emergencies.
Plan and Organize your Student Loan Debt
Take a pen and paper and write your loan principal amount, rate of interest, and minimum amount of payment. Know how much you owe and from where to start repaying your debt.
If you have a federal student loan, check how much you owe on the National Student Loan Data System and if you have a private debt you can pull your report from annualcreditreport.com.
After organizing all your student loan debt data, figure out what direction you want to start to repay it.
Seek loan forgiveness or assistance programs
Research if you qualify for any Loan Forgiveness or assistance programs. Some professions, such as teaching or public service, offer forgiveness programs that can help reduce or eliminate your student loan debt. Ensure you meet all the requirements and follow the necessary steps to apply for these programs.
Remember, student loan forgiveness programs vary based on factors such as the type of loans you have (federal or private), your occupation, and your repayment history. To explore your eligibility for a student loan forgiveness program, do thorough research, review program requirements, and contact your loan servicer or the appropriate institutions for guidance.
Consider Refinancing if you have a steady Job
Explore the possibility of refinancing your student loans. This involves combining multiple loans into one or obtaining a new loan with more favorable terms, such as a lower interest rate. However, be cautious with refinancing federal loans, as you may lose certain benefits and protections.
Let’s say, you have a $50,000 student loan with an interest rate of 6.5% and a remaining repayment term of 15 years.
After Refinancing your student loan debt:
Original loan:
- Principal: $50,000
- Interest rate: 6.5%
- Repayment term: 15 years
Refinanced loan:
- Principal: $50,000
- Interest rate: 4%
- Repayment term: 10 years
By refinancing, you will save money on interest payments and potentially pay off the loan faster. Here’s an estimate of the potential savings:
- Monthly payment reduction: The monthly payments may increase slightly due to the shortened repayment term, but the reduced interest rate can offset this increase.
- Total interest savings: With the original loan, You would pay approximately $27,567 in interest over the 15-year term. However, with the refinanced loan, the interest payments would amount to approximately $10,099 over the 10-year term. This results in a significant savings of approximately $17,468 in interest.
- Total repayment time: By refinancing, You can potentially pay off the loan five years earlier than the original term.
Cut Down Unnecessary Expenses
Remember the saying “Do something today that your future self will thank you for” and minimize your unnecessary expenses and live frugally. Avoid accumulating additional debt, prioritize your financial goals, and save money wherever possible. Redirect the saved funds towards your student loan payments.
Imagine you’re on a mission to pay off your student debt as fast as possible. It’s like embarking on a financial journey, and every dollar you save brings you closer to your goal. That’s where cutting unnecessary expenses becomes a superhero in your debt-payoff adventure.
Make a financial journal and write your expenses in it, and analyze your spending mindfully
Remember, cutting unnecessary expenses doesn’t mean depriving yourself of everything enjoyable in life. It means being intentional with your spending, focusing on your priorities, and making conscious choices that align with your financial goals.
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Increase your Income
Look for opportunities to increase your income. Apply any additional income towards your student loan payments, prioritizing the loans with the highest interest rates.
Now, how can you increase your income? There are several paths to explore:
- Consider taking on a part-time job or freelance work in your spare time. Leverage your skills or explore your passions to find opportunities that align with your interests and schedule.
- Develop a side business or monetize a hobby. Turn your passion for photography, writing, graphic design, or any other talent into a source of income. The possibilities are endless in today’s digital age.
- Focus on skill development. Acquiring new skills or enhancing your existing skills can open doors to higher-paying opportunities or even career changes. Industries hire employees in accordance with their skills rather than solely relying on their degrees.
Try Paying More than the Minimum Amount
A large portion of the minimum payment in student loans is the interest amount and loan fee. So very less amount goes into paying your principal. Regularly paying your minimum amount is not going to clear your debt faster.
Watch your expenses mindfully and save your money to pay more than the minimum payment. This extra amount goes straight toward your principal balance.
Use “Found Money”
“Found money” is like stumbling upon a hidden treasure chest in your financial journey. It is money you get unexpectedly as a gift, a bonus at your job, a tax refund, or a spare amount you saved long ago. Do not spend it off on unnecessary things, try to apportion it towards your loan.
Remember, while found money brings joy, it’s important to use it wisely. Consider your financial priorities, evaluate your current needs, and determine how they can best serve you. Whether you choose to save, invest, or pay off debt, make intentional decisions that align with your long-term goals.