Student loan debt is a big line item in the monthly budget of more than 43 million Americans. Student loan debt can chip away at your budget for housing, your car, and can even impact your ability to retire. Plus, it can hurt your overall happiness and outlook for the future.
For some people like me, owing this debt can have a big impact on your emotional wellbeing. Instead of feeling trapped or overwhelmed, you can do something about that debt level by finding ways to pay it off quickly.
With three easy tips, you can pay off your loans much sooner than the 10 or 20 years that is typically expected.
1. Pay Off Higher Interest Loans First
Often times, the worst part of student loan debt isn’t the amount you owe – it’s the interest that keeps piling up. If you have a high interest rate, you may be paying very little on your principal each month, keeping you trapped in a cycle of never-ending debt. You may feel like you’ll never get ahead. Personally, when I graduated from college in 2016, I had a couple of private student loans with rates above 9%!
That’s why it’s a good strategy to pay aggressively on your student loan with the highest interest rate. You’ll see faster progress, and you’ll be saving hundreds, if not thousands, over the life of your loan.
Your goal should be sending extra money each month to your loan that has the highest interest rate. In the meantime, you’ll make the minimum payment on any other student loan you have.
It can take some serious willpower to earmark all your extra money toward that loan with the highest interest rate, but you’ll feel incredibly accomplished when it’s paid off. After you get that one paid off, the other ones with their lower interest rates won’t seem as daunting.
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2. Refinancing to a Lower Interest Rate
You may want to think about refinancing your student loans into a loan that carries a lower interest rate. In general, to refinance your student loans you will need to have a good credit score, history of income, and on-time repayment history. If you have a low credit score, you might not be able to do this yet. That doesn’t mean you won’t be able to at all.
When you refinance student loan debt, you can consolidate multiple loans into one single loan. Most often, when you refinance student loans you will be able to choose a new term length and rate type (ex. fixed vs. variable).
If you don’t currently qualify for a lower interest rate because of low credit, check back in a few months if you’ve been good about decreasing your debt and paying bills on-time. You might find your credit score will improve enough to earn you a better rate.
→ Related reading: How to Get a Copy of Your Credit Report and Fix Any Errors
Another route you could go to get a better interest rate is to apply for student loan refinancing with a cosigner who has a good credit score. Many lenders will take that into consideration because a qualified cosigner can decrease some of their risk of default. Not all student loan companies allow you to apply with a cosigner, however, some do.
3. Prioritize Bonuses and Pay Increases Towards Student Loan Debt
When many of us receive bonuses and pay increases, we think of that as fun money. After all, our basic bills are already covered. Don’t we deserve a treat for our hard work?
While those temporary rewards will feel good, think about how much better it will feel to have that student loan paid off. It will feel better than a new pair of shoes or jeans – and it will benefit your future much more, too.
If you feel you must buy yourself a treat with a pay raise or bonus, keep it to just one and try to make it an inexpensive reward. And put every spare penny after that toward your student loans instead of making the common move of inflating your lifestyle. Over the last few years since graduation, I’ve work to prioritize my raises and bonuses into larger student loan payments.
→ Related reading: Improve Your Financial Health in 30 Days
If your boss hasn’t given you a pay increase in a while, you can ask for one. If you are turned down, perhaps they have some overtime for you to work. That can go a long way toward paying off your student loans faster.
Also, if you have the spare energy and talent, consider adding in a side hustle. You could turn your talent into extra cash that will retire your student loan debt even faster. And if it’s something you enjoy, it won’t even feel like work.
4. Bonus Tip
Just in case the first three tips don’t work for you, I’ve decided to give you a spare. Sometimes, despite your best efforts, you simply can’t afford to make your monthly payments. Maybe you took on too much debt to get through college, and you’re working in a low-paying industry.
You may want to consider income-based repayment options. If you have a federal loan, you may be able to qualify for these payment plans, which, as the name indicates, uses your income as a determining factor of how much your payment will be. This calculator can be used to calculate the amount you would need to pay under IBR.
With these plans, you may pay longer than you would with other plans, but you’ll be able to make student loan repayment more manageable.