Going to college is a lot of fun. But when you come out of the other side, you have to deal with what seems like a mountain of debt. It is not usual for students – even those who work weekends for the full four years – to come out with $50,000 that they need to pay back. It’s not easy.
Collectively, people around the country owe around $1.5 trillion to student lenders. And, unlike in many countries in the world, these debts must be repaid, regardless of your eventual income.
It is common, therefore, for graduates and older adults to stress about the money they borrowed to go to college. They emerge fresh from their studies with lots of new knowledge, but no clear path to make it economically valuable.
Often, all you want is to be able to pay off your debts as quickly as you can. But what strategies can you employ to reduce the amount you owe to zero faster? Take a look at some of these strategies that work for most people.
Find A Repayment Strategy That Fits Your Personality
When it comes to money, we’re all different. Some of us are naturally frugal, saving away the pennies for a rainy day. Others among us struggle not to blow our paychecks the moment that they arrive on our desks.
The trick here is to accept how you are with money and then work with it. If you’re the kind of person who finds it difficult to resist spending extra cash in your bank account, get the bank to harvest loan repayments from your monthly salary automatically.
If you’re the type of person who relishes a challenge, then why not spend a couple of years whittling down your student loan debt to nothing? You could live like a Trappist monk while you solve your finances and enjoy your income more afterward.
Join Companies That Offer Student loan Repayment Assistance
Employers know that student loan debt is a massive source of stress for the talented people they hire. For that reason, many now offer a perk called “student loan repayment assistance.” The idea here is to provide grads with automatic financial repayments as part of their compensation and pay. The company will pay off the loan in the background while the employee performs their job role. Thus, they don’t need to worry about the repayment of debts for as long as they stick with the firm. That’s all done for them.
Granted, the number of firms actually offering this benefit is surprisingly small. But the quantity of money on the table is quite substantial. Firms can contribute anything up to $10,000 per year for the repayment of student loans.
Refinance Your Student Loan
One of the horrible things about student loans is that you can never escape them, even if you go bankrupt. For that reason, many people are looking for ways to replace their student debt with regular debt. If things go pear-shaped for them in their careers, they don’t want to have that millstone around their necks. They’d prefer to deal with it now than allow it to linger.
Those with good credit ratings and stable income can, therefore, apply for refinancing. Here, you go to a lender and ask them to pay off your student loan with another loan you take out with them. The interest rate on the new loan tends to be a little higher, but you do away with the lifelong burden and stress of a student loan. At least with a regular loan, you have the option to default if things get desperate.
Learn Different Student Loan Options
Learning how to compare student loans is critical if you want to lower your overall costs when it comes to repayments. But very few people actually do that, assuming that all the options are essentially the same.
It turns out that there are some differences in how various schemes work, so you need to do your research to find out which is the best for you. If you’re on the wrong program, you may be able to switch over to a better one.
Split Your Payments
Watching a massive chunk of money float out of your account every month can be a tough experience. All that extra cash just evaporating – it’s heartbreaking.
A lot of people, therefore, like to split up their student loan repayments into smaller chunks to make it more psychologically manageable. Doing this is pretty straightforward, and you can arrange it with your bank or the loan company itself. You just pay on every Friday, or set up a facility where you make half your payment on the 1st of every month, and then half on the 15th.
Splitting up monthly payments into weekly ones can have a profound effect on the length of time you wind up paying back your loan too. The reason for this comes down to the interest rate. When you increase the frequency of payments, you slash future interest costs as a percentage of the total debt, allowing you to whittle it down faster.
Increase The Amount You Pay Back In Each Chunk
This piece of advice might sound obvious, but paying back as much as you can early on is the best thing that you can do to eliminate your student loan expense. The more you can lop off the total early on, the less interest you’ll pay in total.
The effects can be dramatic over time. Slashing your student debt by $10,000 in the first year can reduce your future interest payments by the same amount because the remaining balance is smaller. Less debt, less interest – it’s that simple.
Use Your Windfalls
Windfalls are rare, but they do happen as you go through life. Relatives who have money and assets die, and they pass their wealth onto the next generation – meaning you!
Windfalls are often considerable. But while the temptation is to spend them as soon as you get them, your best option is to use them to clear your debts. Doing this will free you up to generate wealth in the future and rid you of the burden of having to pay interest.
The psychological benefits of clearing your student debt fast are considerable. If you can bring it down to a reasonable level, you feel much freer in your life to enjoy it the way that you want to. Many people consider it to be one of the best ways to improve their quality of life – certainly better than blowing all their money on a holiday or a new car.
Just be careful, though. While your student loan might seem like your most pressing financial issue, it may not be. If you have other forms of debt, particularly personal loans, and credit cards, you’re often much better off clearing those first. They have a far higher rate of interest that can come back to bite you if you allow them to run on, unabated.
You also want to ensure that you have enough savings in the bank to fulfill your long-term goals. Clearing a student loan balance might seem like a massive priority right now, but there are also other things that you might want to achieve in your financial life, such as buying a house or moving to a different country. When paying off a loan fast, it is worth holding these competing goals in your mind. Some people are okay with making significant sacrifices, but many are not.
