How To Pay Off My Student Loans Faster

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With student debt plaguing millennials across America, one of the most common questions I get is, “Should I save or pay off my student loans?” My answer is usually that it depends. Each individual will need to take a slightly different path to paying off debt while still achieving important financial goals.

How To Pay Off My Student Loans Faster

So if you find yourself at a fork in the road and don’t know which way to turn, let me help you figure it out. I will even explain what I would do if I decided to do it myself.

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While it can be intimidating to start with a large amount of student loan debt, you may want to resist the urge to pay off those student loans as soon as possible.

I previously presented a plan for financial success that provides six steps you can take to prioritize your financial goals. This article follows an actual case study where I apply these steps (and go a bit further). This is in response to a great question from reader Kaitlyn:

“Should I focus on building my emergency fund and just pay off what I owed on my student loans until my emergency fund is where it needs to be, or should I build my emergency fund more slowly and put it all into your loans? »

In Kaitlyn’s case, she used her six-month student loan grace period to save an emergency fund for six months’ worth of expenses. (Well done). He planned to pay off his student loans every two weeks up to twice the minimum amount expected, but his situation changed. Kaitlyn moved to take a new job. He paid more, but asked to move to a more expensive city. Kaitlyn says:

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“Now I make a lot more money, but I have higher expenses than before (higher rent, higher car insurance, higher savings, more family insurance, higher pension contributions, etc.). I am not comforted before my loans start.

So her savings will no longer cover six months’ worth of expenses, and smaller fluctuations in expenses are likely to affect her more because she has less wiggle room in her monthly budget.

Although I didn’t mention it in the previous steps, paying off “good debt” like mortgages and, in many cases, student loans would come under step six. Debt, including student loans, is essentially negative savings. Giving back is investing in your financial future just as much as investing in stocks and bonds.

In Kaitlyn’s case, I could pay off my student loans with interest rates of 7% or more, build up savings for retirement and other short-term “life goals,” and then focus on eliminating student loans.

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Following my steps, I would first make sure I have a Small Cash Bank Account™ and save a small amount for retirement. I would then pay off all student loans with an interest rate of 7% or more. If the interest rates are lower than that (as they often are with federal student loans), I would just make the minimum payments and focus on:

, so what I would do might not work for everyone. (I have many friends who want to be debt free more than anything, so they will pay off their student loans as soon as possible, regardless of the interest rate).

With smart investing and a little luck, average annual stock market returns can match and possibly beat loan interest rates. And the sooner you start investing, the longer your investment can grow.

It’s still no fun paying interest, but the tax deduction for student loan interest only adds to the fact that your money could work better for you if you invested it.

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On paper, it doesn’t matter if you pay off your student loans in advance or put money in the bank—your net worth increases by the same amount each month. But let’s assume the worst. God forbid you lose your job or need life-saving surgery? The more money you have, the better prepared you will be for such a large financial setback. If you paid off half of your student loan early, you’ll still have a minimum payment and won’t have as much cash on hand.

If you have a good credit history and stable income, consider refinancing your student loans. You can lower your interest rate, consolidate multiple student loans into one monthly payment, and lower your total monthly student loan payments.

So here’s my take: save something in an emergency fund, pay off student loans above 7%, then focus on retirement and other savings goals while making minimum payments ‘other student loans.

David, founder of Money Under 30, has over 20 years’ experience as a personal finance journalist covering credit cards, banking and investments. All recommended products and services are independently evaluated. If you click on the links we provide, we may receive compensation. learn more

Debt Snowball Can Pay Off $6,000 In 6 Months. Here’s How

Student debt can have a big impact on your life, but there are a number of ways to speed up payment.

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

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

Three out of five Americans live paycheck to paycheck, and this is common even for those earning six-figure incomes. With that in mind, setting a budget and sticking to it is an essential task before you can tackle debt settlement.

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List all your monthly income and expenses. If you don’t have much money left over after paying your bills and variable expenses, you may need to cut back on your spending. You can also increase your income through side businesses or by asking 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. The lender will automatically deduct the required payment amount each month on your statement due date. Signing up for automatic payments ensures you never miss a payment, which could hurt your credit, and helps you plan your spending.

As an added bonus, signing up for autopay can save you money. Federal loan servicers and some private lenders offer discounts to borrowers who enroll in autopay. A discount, if available, can usually reduce your interest rate by 0.25%. With a lower interest rate, more of your payments go toward principal and you can get out of debt faster.

If you have private student loans or federal loans with high interest rates, student loan refinancing is another way to speed up repayment. When you refinance your debt, you apply for a new loan from a private lender to pay off your existing loans. If you have good credit, or if your co-signer has good credit, you can qualify for a new loan with a lower interest rate than your current loans.

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A lower interest rate can lower your total repayment costs and monthly payment and help you pay off your debt faster.

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

But let’s say you refinanced your loan. You want to pay off your debt as quickly as possible, so you decide on a term of seven years. Thanks to good credit and a shorter loan term, you benefit from an interest rate of 3.5%. Your monthly payment would be higher than before ($524 compared to $414), but your total repayment costs would only be $44,029. Refinancing would save you over $5,600. And they would have gotten out of debt three years earlier. .

Student loan refinancing 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.

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

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

If you want to pay off your student loans faster, it’s essential that you pay more than the required minimum. This will not only help reduce the principal, but also reduce the amount of interest accrued.

You don’t need to make large additional payments to change anything. Additional small payments may be added. For example, if you had

It Took Me Almost A Decade To Pay Off $8,000 Of Student Loan Debt, But After Refinancing I Can’t Believe How Fast It’s Going Down

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