7 Simple Ways to Pay Off Any Size Student Loan
While it would be nice to start off your professional career with a clean slate of zero debt, student loans are a necessary evil for many young professionals these days. In fact, numerous surveys say the average college graduate is now saddled with more than $30,000 in student loan debt.
If you're a recent college grad, you may be worried about finally making those student loan payments that typically become due six months after graduation. Or if you're a few years into your career, chances are you're still faced with that nagging monthly student-loan payment.
In order to start preparing for the next phase in your life -- marriage, home ownership, retirement savings -- ridding yourself of the student loan can free up a large chunk of your paycheck to devote to these goals.
Here are eight ways to get a jump-start on your student loan and start living a debt-free life.
1. Know What You Owe
Graduates are often confused about how much they owe and exactly where they owe it. To help clarify matters, make a list of:
1) Your loans
2) The interest rate of each
3) The balance due
4) Who services the loan
5) The minimum monthly payment amount
You can find this information in the notices and statements that the lender sends you. You can also do an online search for "the National Student Loan Data System" to find a complete list of your outstanding student loan debt.
2. Make a Budget and Stick to It
Having a solid budget in place lets you know how much money you have available to spend, how much you need to save and how much of your loans you can pay each month.
What are the steps for making a budget? Start by adding up what you make each month, subtract necessary expenses, subtract 10% for savings (if applicable) and whatever is left is the amount you have left to spend.
Say you want to pay off your debt in the next year. Take the amount you owe on your student loan and divide by 12 -- this is your monthly student loan payoff. Next, add up what you make each month, subtract your monthly loan payoff, and what you have left is the money you have available to spend.
If it's not enough to make your necessary payments (rent, electricity, food, etc.), then maybe you need to adjust your lifestyle. Move in with your parents or look for a roommate. Drop your cable. Visit your public library more often. If you're married or in a relationship, positioning yourselves in a way that you can live on one income provides an excellent opportunity to throw large chunks of money at your debt.
A budget is your blueprint for financial success. Seeing where your money goes on a monthly basis and creating a plan for allocation is your best bet to reduce spending and cut costs in any way possible.
3. Consolidate Your Loans
If you have several student loans from different lenders, it might be a good idea to consolidate all of the loans into one simple account.
Consolidating private student loans is a bit more challenging. In the fallout of the debt crisis, many institutions stopped offering consolidation programs for private loans. Wells Fargo, Citizens Bank and the LendKey are some of the few establishments that do, and they can offer competitive annual percentage rates below 4%.
Another option would be to check with the financial institution where you bank to see if you qualify for a personal loan. Depending on your credit score, you may qualify for a personal note with lower interest than what you're currently paying on your private student loan.
4. Pay More Than Required
By doubling up on your payments (also called "snowballing" payments), you can pay your student loan debt off faster by allocating more to the principle. Contributing all available money to your outstanding debts will allow you to pay it off much more quickly.
Here's how to do it a debt snowball strategy. If you can't consolidate your debt, you need to make at least the minimum monthly payments on all of your student loans each month, but concentrate your efforts on those loans that carry the highest interest rates first. Once the highest rate loan is knocked out, put what you were paying on that one toward the next highest-rate loan, and so on until they're all paid off.
This process can seem slow going at first, but when you look at the big picture, snowballing payments can shave years off of the life of your loan.
5. Start Paying Before Graduation
If you are still in school, start paying off your student loan debts as soon as possible -- even before you graduate. This will help to alleviate the burden of debt that you will face following graduation.
Avoid spending more than you make and concentrate on paying off the debt you have incurred. Brainstorm other means of generating cash, such as a summer job, paid internship or a small business of your own. You never know, an income-generating side interest in school could turn out to be your full-time career when you graduate.
6. Do Not Take on More Debt
While credit cards can be valuable tools in responsible hands, using them to live a champagne life on a beer budget is a surefire way to wreck your financial future. And strapping yourself financially can be as simple as taking on additional debt from credit cards, outlandish housing costs or a hefty car payment.
Everyone wants to live the high life, but avoiding these additional debts in the now can place you in a better position financially for tomorrow.
7. Let Your Employer Pay It All Back
Savvy college students seek careers that are in high demand, often times with sign-on bonuses that can provide a jump start on their student loans. This is often the case for teachers who are sought out by school districts where there are a shortage of qualified applicants, or doctors and nurses who are offered bonuses to work in areas of the country where there is a high need for their skills.
Not every college grad will make a six-figure salary fresh out the gate. Or worse, some college grads won't be able to find a career in their chosen path at all. In this case, certain government programs and non-profit organizations offer incentives that can be applied to student loan debt, provided that you agree to work for them for a particular number of years.
For example, Teach for America -- which trains you to become a teacher to help out low-income school districts -- can give members the opportunity to have their student loans forgiven in 10 years or less. The Peace Corps offers a cancellation of 15% to 70% of a volunteer's Perkins loans. And both programs look great on a resume.
While the idea of paying back a student loan can be daunting at first, getting out of debt is not impossible. By starting early, being diligent with payments, managing your money wisely and paying more than you are required to on your student loans whenever possible, you can whittle your loans down to a zero balance.
More Ideas to Pay Off Your Debt Fast:
1. Free yourself from credit card debt this year. Learn how to pay 0% on your balances for up to 21 months in The Top 4 Balance Transfer Credit Cards for 2020.
2. Slash your car payments. If you're paying 6% APR or more, it's time to know The Top 3 Reasons to Refinance Your Car Loan.