Outstanding Student Loan Debt Sits at $28 Billion. 5 Tips For Paying Yours Back Quicker
You've graduated from college or university and are just starting your new career, and your student loans are also coming due. While the ultimate goal is to get them paid off in a timely fashion, there are a few things you need to consider.
Tip #1: Lower Your Principal Amount
Perhaps the most effective way to pay your student loans off quicker is by paying down on your principal. The higher the principal amount, the more interest you’ll owe. And the more interest you owe, the longer you’ll be paying.
There are two primary ways in which you should work to lower your principal amount.
Start Paying Before You Have To
After graduation, you will have a six-month non-payment period. Just as it sounds, you will not be required to pay on your outstanding student loan debt until this six-month period has passed. If you choose to pay on your student loans during this time, or even while you’re still in school, your payments will go directly toward the principal - not the interest.
It’s important to read the fine print of your loan, as some may begin collecting interest as soon as you graduate - even if you are not required to begin paying the loan back.
Pay Extra Every Month
If you choose to put money towards your student loans each month above the required minimum amount, this money can be put towards the principal of the loan.
Tip #2: Make Payments a Budget Priority
You’ll want to budget for your student loan payments each month, just as you would any other recurring expense (such as rent, utilities, groceries, etc.). If you can, try to prioritize paying your student loan payments - especially above the minimum amount when you can. If you know you’ll have some additional discretionary income this coming month, consider putting that towards your payment instead of spending frivolously on eating out or shopping.
Tip #3: Consider Your Repayment Options
Just because you borrowed from a certain institution or lender before heading to school doesn’t mean you’re stuck with their terms and conditions for the next 10 years. Upon graduation, do some research and compare interest rates among institutions’ student line-of-credit options and other student loan lending services. You may find that better interest options out there make refinancing your student loans a money-saving strategy.
Tip #4: Pay On Time
Always pay your bills on time. If it helps, set an alert to remind you the week before it's due. If you get in the habit of paying your loan a week before it's actually due, you won't be late. And even if you forget, your lender may offer a grace period (typically a couple of days).
If possible, consider enrolling in an automatic payment program - this can make the task of paying your student loan debt hassle-free each month.
Tip #5: Maintain Your Student Loan and Pay Off Other High-Interest Debt
If you find yourself with a higher debt-to-income ratio than you're comfortable with, you may want to consider paying extra on other types of debt that are higher-interest than your student loans. Instead of putting more towards your student loans each month, consider putting it towards your credit cards or other higher-interest loans. Continue to maintain your student loan debt by paying the monthly payment or slightly more, but by paying off your credit cards, you will pay less in interest and be able to better manage your credit card debt. Your student loan rates won't change like those associated with your credit cards, so it may be a good idea to double up payments on your credit cards or other loans.
Taking time to pay off your federal student loans provides an opportunity to establish the credit you will need for other important life events, such as buying your first home or car. They also give you an opportunity to learn how to manage your finances to last you the rest of your life.
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