The best way to pay off student loans is to pay more than the minimum each month. The more you pay for your loans, the less interest you owe and the faster the balance will disappear.
Use a student loan repayment calculator to see how quickly you could get rid of your loans and how much money you would save in interest. Here are seven strategies to help you pay off your student loans even faster.
There is never a penalty for prepaying a student loan or paying more than the minimum. But there’s a caveat with prepayment: the student loan officers, who collect your bill, can apply the extra amount to the next month’s payment.
This brings your due date forward, but it won’t help you pay off your student loans any faster. Instead, have your server – online, over the phone, or by mail – apply the overpayments to your current balance and keep the next month’s due date as expected.
You can make an additional payment at any time of the month, or you can make an student loan lump sum payment on the due date. Either one can save you a lot of money.
For example, let’s say you owe $ 10,000 with an interest rate of 4.5%. By paying an additional $ 100 each month, you would be debt-free more than five years ahead of schedule if you had a 10-year repayment plan.
2. Refinance if you have good credit and a stable job.
Refinancing replaces several student loans with a single private loan, ideally at a lower interest rate. To speed up repayment, choose a new loan term that is shorter than your current loans.
Going for a shorter term can increase your monthly payment. But it will help you pay off the debt faster and save money on interest.
For example, refinancing $ 50,000 in interest from 8.5% to 4.5% could allow you to pay off your student loan debt almost two years faster. It would also save you around $ 13,000 in interest, even with payments that stay roughly the same.
You are a good candidate for refinancing if you have a credit score of at least 600, solid income, and a debt-to-income ratio of less than 50%. You should not refinance federal student loans if you want or need programs such as income tested and civil service loan forgiveness.
Would refinancing save you money?
Federal student loan managers offer a quarter point discount on the interest rate if you let them automatically deduct payments from your bank account. Many private lenders also offer an automatic payment deduction.
The savings from this discount will likely be minimal: dropping the interest rate on a $ 10,000 loan from 4.5% to 4.25% would save you about $ 144 in total, based on a 10-year repayment plan. But it’s still extra money to help pay off student loans quickly.
Contact your service agent to register or to find out if an automatic payment discount is available.
4. Make bi-weekly payments
This simple strategy is one way to trick yourself into paying extra on the debt: pay half your payment every two weeks instead of making a full payment per month.
You will end up making an additional payment each year, saving time on your repayment schedule and dollars on your interest charges. Use a bi-weekly student loan payment calculator to see how much time and money you can save.
5. Repay the capitalized interest
Unless your loans are federally subsidized, interest will accrue during your education, grace period, and retirement periods. adjournment and abstention. This interest capitalizes when the repayment begins, which means your balance increases and you will pay interest on a larger amount.
Think about doing monthly interest payments while it accumulates to avoid capitalization. Or make a lump sum interest payment before your Grace period or the postponement ends. This will not immediately speed up the payment process, but it will mean a smaller balance to clear out.
6. Follow the standard repayment plan
The government automatically places federal student loans on a 10-year repayment periodunless you choose differently. If you can’t make big extra payments, the fastest way to pay off federal loans is to stay on this standard repayment plan.
If you don’t really need these options and can afford to stick with the standard plan, it will mean a faster path to debt relief.
If you get a raise, a student loan refinance premium or another financial windfall, allocate at least part of it to your loans. Consider using this breakdown: 50% of the extra income can be spent on debt, 30% on savings, and 20% on discretionary and fun spending.
You can also start a secondary activity to quickly repay student loans. Sell items like clothing, gift cards, or unused photos; rent your guest room, parking space or car; or use your skills to work as a freelance or consult in parallel.
Consider making some rules for yourself, like putting the $ 5 or $ 10 bills you get on your loans. Some money saving apps, like Digit and Qapital, will also help you set savings goals and rules.