Need some ideas for paying off student loans fast? We’ve got you covered today with some amazing tips from the bloggers at DINKs.co. Today they are sharing their tips for how to pay off student loans fast while still being frugal.
Student loans are at an all-time high; in fact, the total amount of student loan debt in the United States is higher than the total national credit card, exceeding $1.4 trillion. With graduating college students finishing school with an average student loan debt of over $30,000, it’s safe to say that student loans are on everyone’s minds.
Student debt is a pretty big issue. In fact, college graduates are postponing life milestones. Getting married, buying a home, and starting a family are only a few of the standard milestones that many graduates are postponing into their late 20s or even into their 30s. Savings for retirement and other financial goals are also being set aside as grads put all of their effort into paying their student loan debt.
How to Pay off Student Loans Fast, Frugally
All the statistics in the world mean little to the individual student trying to get their loans paid down. If that describes you, read on—there are ways to pay down your debt that don’t involve breaking the bank.
The Avalanche: Paying Off High-Interest Debt First
If you have multiple student loans, one way to pay them down faster is to make what’s called an avalanche. That’s when you throw every spare penny you have at the highest-interest loan you have, while paying the minimum on your other debts. Once the highest-rate debt is paid, you repeat the same procedure with the next-highest rate debt, and so on. The total amount you’re paying each month won’t change, but how it’s allocated will change. This method is especially effective if you have a mix of private student loans and federal student loans (private loans usually cost more with higher interest, while federal loans usually come at lower rates).
The avalanche method is usually the quickest way to pay off debt, and it doesn’t require any special changes to be made to your loans, like student loan refinancing. However, if your highest-rate loan is also one of the largest, you might find yourself bogged down and feeling as though the frugality will never end. Some experts recommend a snowball method instead, in which you pay off the loan with the smallest balance first. Being able to see your debts getting paid off can have the psychological effect of keeping you motivated, and that can keep you on the right path.
Find a Lower Monthly Payment
There are a few ways to get a lower monthly payment on your student loans. The first is to refinance for a lower interest rate or to refinance specifically for a lower payment. If you refinance for a lower rate, your payment will decrease by default, and you should be able to pay off your loan faster, costing you less over the life of the loan.
If you refinance for a lower monthly payment, then you’ll save money initially. However, this won’t help you pay your loans down sooner unless you use that time and lower payment as leeway to find a new, higher-paying job. If you just ride out the lower payments, chances are you have an extended repayment term, so it’ll take longer to pay back. It’ll also cost more in this scenario.
If you try to consolidate through a federal program or take advantage of an income-driven repayment plan, however, you might actually defeat your own efforts of paying the loan down sooner. Opting for a federal consolidation loan, you can get a lower monthly payment; however, you’ll be stuck paying into a loan for longer at basically the same interest rate (federal consolidation loans come with a weighted interest rate).
If you try to use an income-driven repayment program, it’ll take forever to finish repayment. In fact, you might actually have a higher balance after 10 years. IDR cap payments at a percentage of your income, so it’ll be a low payment for sure. However, your balance could be capitalizing at a rate that exceeds the pay down rate. If that’s the case, then you’re heading in the wrong direction.
Reduce Monthly Expenses and Make Bi-Weekly Payments
If you’re used to making one payment every month, try splitting that monthly payment amount in half, and paying that half-payment every two weeks instead. You might need to look at your monthly expenses and cut out anything non-essential; everything from your iced coffees to your favorite streaming service might need to take a vacation for a while.
If you make bi-weekly payments instead of monthly ones, you’ll end up making an extra payment at the end of the year. 26 half-payments amounts to 13 full, monthly payments as opposed to making 12 scheduled payments each year. In addition, you’ll have the added benefit of paying down the principal of the loan faster—every two weeks instead of monthly—and that means less interest is accruing, and less you’ll need to pay off.
Paying down your student loans does require some sacrifice and discipline, but it doesn’t need to mean you’re eating ramen noodles for the next 10 years. Any combination of the methods above can help you get on the road to getting your loans paid off faster. Granted, you might end up having to give up a comfort or two for a while, but you’ll be out from under the weight of those loans—and on to spending your money on better things.
Check out more from June and Dan at DINKS.co where they blog about finance and life as a duel income, no kids couple.