Standard repayment plans for student loans are 10 years. In this time college graduates will find themselves paying thousands of dollars in interest. In this time many things are put on hold such as marriage, home ownership and children.
But why wait that long? Why wait 10 years to get out of debt? By paying of your student loans ASAP you will find yourself a lot closer to not only living debt free, but also to being able to move forward with your life saving for your future and comfortably having a family.
So where to start? Here are some ways to pay off student loans quickly:
Reduce Interest Rates
Many lenders have some kind of discounted interest rate available for those that set up direct deposit (this includes the department of education – lender for all federal student loans). This discount usually ranges from 0.15% to 0.30%. The incentive for the lender is that when people set up direct deposit it is more likely that they will receive payments on-time. If you do take the full 10 year term to pay off your debt, this small interest rate reduction could save you hundreds of dollars on a loan of $20K or more.
In addition you should check with your lender to see if there are any other ways to reduce your interest rate, some lenders will also offer incentives to people with high credit scores or a history of on-time payments. It’s also always good to call back every year to see if there are any ways to get reduced rates. You won’t know unless you ask.
The final way that you can look at reducing your rates is to look at debt consolidation. Other lenders may be able to offer you better rates for moving your debt over to their banks.
Make Larger or More Frequent Payments
This is the easiest and most obvious way to pay off debt faster. So, how much more should you pay? First you should determine what percentage of your income you can afford to comfortably put towards your student loans. Most people pay around 10%, although, depending on your living and work situations this percentage will vary.
The simplest way to make more frequent payments is to pay your loans bi-weekly instead of monthly. By making half a monthly payment every 2 weeks you actually will fit in an extra full month’s payment for every year you are paying back the loan.
While it’s important to pay back your loans quickly, it’s also important to live comfortably. Make sure that you are not stretching yourself too thin and that you can realisticly make these payments ON TIME EVERY MONTH. Missing a payment can mean a lower credit score, this could cause you to have higher rates applied to your loans and a more difficult time getting credit in the future.
One way that you can make bigger monthly payments is by finding a part-time job. This might not sound like the way you want to spend your time, but this could save you so much more than it costs you at the time. Putting your extra income towards your student loans will help you to make bigger payments and saving you thousands of dollars in interest charges.
Budget Budget Budget
However you decide to repay your loans it’s so so important to have a budget that accounts for every expense that you will encounter along the way. This is a life-skill that you will use to plan for your future as well when you start looking at having a home, family and finally your retirement.