While some may argue that you can’t put a price on a good education, many of today’s graduates face the grueling task of paying off student loans within a reasonable timeframe. However, if you’re feeling overwhelmed by student loan debt, there are a few ways to pay off student loans quickly.
Why pay off student loans fast?
Paying off your student loans quickly can be extremely beneficial to your financial health. By doing so, you’ll be able to save for retirement sooner, improve your credit score and avoid interest accrual.
Right now is the perfect time to start chipping away at your student loan debt, if you have the financial means. Due to the current state of the economy, interest is waived and payments are paused on all federal student loans through Sept. 30, 2020. This is a great chance to make progress on paying down the principal on your student loans without having any interest accrue.
Is it worth it?
Paying off your student loans quickly can certainly be worth it, but only if you’re financially prepared. In order to avoid putting yourself in a less-than-desirable financial situation, you’ll want to have your finances in order and have a financial plan in place. Before you start paying down your student loans, take a look at your budget to make sure you can afford extra payments without ending up with more debt — paying back more than the monthly minimum on your student loans isn’t wise if it causes you to miss credit card or mortgage payments. If done responsibly, paying off your student loans fast will always be worth it.
5 ways to pay off your student loans fast
There are a few ways to start paying off your student loans faster:
- Make additional payments.
- Establish a college repayment fund.
- Start early with a part-time job in college.
- Stick to a budget.
- Consider refinancing.
1. Make additional payments
If you can afford it, treat the loan like a mortgage and simply make larger payments to cut the principal more quickly, says financial planner Allan Katz, CFP professional, president of Comprehensive Wealth Management Group in New York’s Staten Island.
It’s one of the best pieces of advice when you’re determining how to pay off student loans quickly. By diminishing the principal balance, you’re minimizing the duration of the loan period and the interest accrued.
For example, a $25,000 student loan with 6.8 percent interest with a 10-year payback period would cost $288 a month. Paying $700 a month instead of $288 enables the borrower to repay the loan in just over three years.
Another strategy is adding payments and sending in checks every two weeks rather than monthly.
Once that college loan is repaid, the benefits proliferate. “It’s one less debt you owe. The money you make is now free to be invested and applied to owning a house, saving for retirement or putting a child through college,” Katz says.
Takeaway: Making larger payments will help you cut through the principal more quickly, which will allow you to pay off your loan sooner.
2. Establish a college repayment fund
Another great tip for paying off student loans quickly is placing your money into an account you can’t easily draw from with the swipe of a card. Having money moved automatically into savings is effective because it’s forced, Katz says. It enables people to set aside money to grow that otherwise would be spent on clothes or dining out.
Just make sure to set up an account that will be used only for paying back your college debt. Don’t use checking or savings accounts you already have, because you might use that money for something other than your student loan. Compare savings accounts and put your money in an account with a higher yield to maximize your savings.
Takeaway: Setting up an account specifically for your student loan repayment funds can be a great way to compartmentalize your finances. It can also help you control out-of-budget spending, allowing you to potentially make extra payments.
3. Start early with a part-time job in college
Getting a part-time job while attending college is one way to keep college debt in check, because it generates money you can use to help offset student loan debt.
Say that you are able to work a part-time job that allows you to put away $500 a month. In a year, that’s $6,000 you can put toward paying off student loans.
Takeaway: If you’re able to properly manage your coursework and a part-time job, a job can allow you to create a student loans savings account.
4. Stick to a budget
Not knowing how to manage finances properly can prevent students from paying off their loans so quickly and, as a result, delay more fulfilling life investments. By planning ahead and knowing how your mind works, you can make some necessary sacrifices and avoid falling off the budgetary wagon.
“Maintaining financial discipline is a difficult hurdle for many people,” Katz says. “Most people don’t have the discipline to save. Most people spend like goldfish eat, which is nonstop.”
The people who succeed at cutting college debt are those who “live within their own means and are conscientious about saving,” Katz says.
Takeaway: Your financial health and spending habits can greatly impact your ability to pay off your student loans — be diligent about sticking to a budget during your repayment period.
Next steps: Do an assessment of your spending habits and your ability to keep a budget. If you find it hard to keep a solid budget as a college student, use our student budget calculator to help you get — and stay — on track.
5. Consider refinancing
If you’re not sure how to pay off student loans quickly or if it doesn’t seem feasible, you may be paying too much interest. That’s where you might consider refinancing your loan into a better rate or a shorter repayment period. While refinancing federal loans with a private lender will cause you to lose some federal benefits, it could make paying off your loans more achievable.
Takeaway: If you’re overwhelmed by the prospect of paying down your loans quickly, refinancing may be a good option. While it’s not for everyone, refinancing can help you score a lower interest rate or different repayment terms.
Next steps: Before applying, compare offers from multiple lenders to determine if refinancing will save you money in the long run. If you decide to refinance your student loans, do your research and apply with the lender that will best suit your financial needs.
Things to consider
Paying off your student loans is manageable with the proper planning. In order to pay off your student loans fast, you may have to make sacrifices, get a part-time job or get strict on a budget, but doing so can help you get out of debt faster and eliminate years of interest payments. One of the most important things you can do for your future finances is to pay off your student loans fast.
Featured image by Plume Creative of Getty Images.