How To Get Rid Of Student Loans Fast

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Student loan debt can have a big impact on your life, but there are some ways to speed up paying it off.

How To Get Rid Of Student Loans Fast

There are simple methods, like making a budget and paying more than the minimum every month, and more significant changes, like refinancing your loan. Here’s how you can save money faster by paying off your student loans.

Student Loan Borrowers

The average student loan balance is more than $39,000, and because you may have been paying for decades, your debt can significantly impact your ability to pursue other goals.

Three in five Americans live paycheck to paycheck, and this is common even for those earning six-figure incomes. With this in mind, creating a budget (and sticking to it) is an essential task before you can pay off your debt.

List all your monthly income and expenses. If you don’t have a lot of money left over after covering your bills and variable expenses, you may need to reduce your expenses. Or you can supplement your income with side jobs or ask your employer for a raise to get extra money to pay off your student loans.

Student loan companies allow customers to sign up for automatic payments. Each month, on the due date of your statement, the lender will automatically deduct the required payment amount. Signing up for automatic payments ensures you never miss a payment, which could hurt your credit, and helps you plan your spending.

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As an added benefit, signing up for autopay can help you save money. Federal loan servicers and some private lenders offer discounts to borrowers who sign up for automatic payments. If you are offered a discount, it can usually reduce your interest rate by 0.25%. With a lower rate, more payments go toward principal and you can get out of debt faster.

If you have private student loans or high-interest federal loans, student loan refinancing is another way to speed up repayment. When you refinance your debt, you take out a new loan from a private lender to pay off your existing loans. If you have good credit or a cosigner with good credit, you may be able to qualify for a new loan at a lower rate than your current loans.

A lower rate can reduce your total repayment cost and monthly payment and allow you to pay off your debt faster.

With $39,000 in student loan debt with 5% interest and a 10-year repayment term, your total repayment cost would be $49,639; The interest would add more than $10,000 to the cost of your loan.

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But let’s say you refinanced your loan. You want to pay off the debt as quickly as possible, so you decide on a seven-year term. Thanks to good credit and a shorter loan term, you qualify for a 3.5% rate. Your monthly payment would be higher than before ($524 versus $414), but your total repayment cost would be just $44,029. Refinancing would help you save more than $5,600. And I would have been debt free three years earlier.

Refinancing your student loans is a big decision, but in some cases it may be the right decision. Check out our picks for the best student loan refinancing companies below.

Think twice before refinancing federal student loans. Refinancing cannot be reversed, and refinanced federal loans are not eligible for federal benefits such as loan forgiveness, income-driven repayment, or forbearance programs.

When you take out student loans, you sign a loan agreement that establishes the annual percentage rate (APR) and repayment period.

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If you want to pay off your student loans faster, the key is to pay more than the minimum required. This will not only help eliminate the principal but also reduce the amount of interest accrued.

You don’t need to make large additional payments to make a difference. Small additional payments may be added. For example, if you had a $39,000 loan with 5% interest and a 10-year term, your monthly payment would be approximately $414.

If you increased your payment by $25 to $439, you would save more than $800 in interest and pay off your debt eight months sooner.

Use the federal loan simulator to find out how much you can save by adding up your monthly payments.

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If you can’t afford your student loan payments and you have federal student loans, consider enrolling in an income-driven repayment plan. These plans have longer repayment terms, 20 or 25 years, but they base their payments on your discretionary income. And at the end of the loan term, the government will forgive the remaining balance if you still owe money.

Another option is to pay every two weeks. With this approach, you divide your minimum monthly payment in half and pay that amount every two weeks. Because there are 52 weeks in a year, you’ll pay the equivalent of 13 monthly payments instead of 12 to reduce payment time and save money. The American Institute of CPAs has a biweekly payment calculator you can use to estimate how biweekly payments could affect your debt.

Not all companies allow you to opt for automatic payments if you plan to pay biweekly, so you may have to make payments manually. This shortfall could mean you miss out on your automatic payment discount and also run the risk of forgetting and missing your payment due date. If this happens, you could incur late payment fees and the lender could report the late payment to the credit bureaus, damaging your credit.

During the year, you may receive an unexpected benefit, such as a tax refund or a salary increase. By putting this windfall toward your debt, you can save money and get out of debt faster.

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For example, the average tax refund for the current tax season 2023 (tax year 2022) is $2,910 as of March 31, 2023. If you had a $39,000 loan with 5% interest and a 10-year term and apply the full refund as a one-time payment, you would pay off your debt a year earlier. And you would save $1,761.22 in interest costs.

Surprisingly, your employer can be an invaluable resource in paying off your debt. According to the Employee Benefits Research Institute, 27% of employers currently offer subsidies for direct loan repayment and 44% offer 401(k) contributions tied to your student loan payments.

Typically, these plans operate like an employer business. Your employer matches your student loan payments, up to a maximum monthly amount. For example, an employer may pay up to $100 per month toward your loans. Contributions from a 401(k) should work similarly, but will go toward your retirement and pay off the loan faster. Still, it’s nice to have some extra money for retirement.

These programs can be an effective way to quickly pay off your student loans without cutting into your budget.

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Your monthly student loan payments may already seem high, and the idea of ​​paying off a large loan more quickly can be daunting. But there are some simple strategies you can explore, and some of them will probably work for you.

It may be worth the effort to pay off your student loans faster. Not only will you save money in the long run, but being debt-free means less stress and more opportunities to use your money as you see fit, whether it’s for investments, recreation, or something else.

Not sure if it makes sense to pay off debt faster or save money? Think about it with our guide to saving versus paying off debt.

When researching how to pay off your student loans faster, you may be concerned about how paying off debt will affect your credit score.

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Paying off your student loan in full may cause your credit score to drop slightly, especially if your student loan is the only installment loan on your credit reports. This is because your credit mix makes up 10% of your credit score. However, the decrease should be relatively small and your credit will recover over time as long as you make all other payments on time and keep your credit card balance low. In general, you shouldn’t worry about your credit being negatively affected by your student loan payments.

While it may be tempting to use your savings to pay off debt, it can be a risky choice.

Student loans may be eligible for forgiveness, meaning you can delay your payments if you lose your job or become seriously ill. But other expenses, like rent and utilities, are typically not deductible. Emptying your savings account to pay off student loans could leave you in a vulnerable position if an emergency arises later.

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