Does paying off your student loans feel completely difficult? Worse yet, does it feel unachievable for you? Hear me out; you can do it. In this post, you’ll learn how to pay off student loans fast.
Let’s first get things clear: This post will not give you a secret tip or a magic trick that will enable you to get rid of every loan in a matter of days. No, this post isn’t about some student loan repayment magic. This post shares practical and realistic ideas you can follow to pay off your student loan quickly.
Because, just as no one grows overnight, quick student loan repayment won’t happen overnight.
With that said, it is important to note that nobody enjoys having to repay student loans, or any loan, for that matter. It could strain your finances and keep you from making the most of your money.
But if you stick to these guidelines, you can quickly repay your student loan and get your financial life back on track. It takes time, effort, and a lot of sacrifices to pay off your student loans, but it is possible. I’m not even kidding.
Is It Recommended To Pay Off Student Loans Early?
Whether you should pay off your student loan fast or not is dependent on your situation. Some people’s top financial objective is to pay off their student loans as soon as possible. However, there are several situations in which you should take your time paying off your student debts.
For instance, you might not want to give up on your retirement savings to pay off your student loans fast. Or, if your employer matches your 401(k) contributions, it could be wise to make the required amount to receive the match rather than making additional payments on your student loan repayment.
Instead of repaying more to clear your student debt, you should increase your savings if you’re trying to buy a home, start a family, or start a business. You could also prioritize an emergency fund over paying off your student loans if you don’t already have one.
Additionally, you should rethink paying off your loans more quickly if you’re qualified for any loan forgiveness program. Even though you’re theoretically paying down your student loans over a longer period, if you choose loan forgiveness, you can save more money in the long run.
However, if none of those above conditions apply to you, then it would be wise to pay off your student loan earlier, so you can get back to planning or using every penny you earn for yourself.
How To Pay Off Student Loans Fast
Set Up A Budget.
This single step will revolutionize your loan repayment game—and, indeed, your financial life. If you haven’t already started making budgets, now is the time to create and stick to one. A budget lets you see where your money is going and where you can cut costs.
There are different types of budgets. It would be best if you learned about the types and all about budgets, as we have discussed them in detail here.
The savings can add up slowly if those extra snacks for late-night movies are reduced.
It’s much better to stick to a budget than to hope to find $10 in your high school windbreaker jacket. You’ll quickly see results once you allocate all that extra cash toward your early student loan repayment each month!
With a budgeting app, you’ll be able to track your progress as you continue to pay off your student loan, which will be very rewarding.
Make Some Financial Sacrifices.
You’d remember I mentioned sacrifice earlier in my introduction. You’d have to make sacrifices to pay off your student loan fast. That is similar to shunning extra finger foods as you binge on Netflix late at night.
Now, look at your lifestyle. What extras have you been relying on that you don’t need? You want to trim down on subscriptions. Netflix? Off!
Do you need that extra room? You can halve your housing expenses by renting that extra room. Imagine how quickly you would pay your debt off if a neighbor drastically reduced your housing expenses. Imagine how quickly your debt would be paid off if your housing expenses were drastically reduced.
Consider putting some unwanted items up for sale too. Take stock of your garage, storage space, and closets to see what you may sell on Craigslist, Facebook Marketplace, or eBay. Then, add the amount you spend each week on eating out. Instead of spending an extra $7 on an oat milk latte, why not make your own at home? Rather than spending $10–20 on lunch, food prep for the week, or eat your leftovers, they aren’t that horrible. I bet they’re not.
Furthermore, learn how to shop smartly. I assure you that there are many smart ways to save money while shopping. But it all starts with a willingness to trade off short-term benefits for longer-term ones. It’s all about delayed gratification.
Pay More Than Just The Required Minimum.
You probably knew this one before. You won’t pay off your student loans quickly if you merely pay the minimum amount each month.
With those interest you’re accruing, you might not even break even anytime soon! You can decrease the balance you owe more quickly if you make payments higher than the required minimum. There are student loan repayment calculators like this one that you can use to calculate and see how much faster you can pay off your student loan when you make extra payments.
Here’s an illustration:
- Assume you owe $37,784.1 in student loan debt, the average debt graduates owe. (That sum may represent several loans, but let’s assume they are all one loan for this example.)
- You would be looking at paying a minimum of $426.78 monthly with a 10-year loan term and a 5.8% interest rate (which is the industry average).
- Your total payments would be $51,489 due to interest, which is $12,697 more than your initial loan! Isn’t that staggering?
- But suppose you chose to pay the minimum amount each month plus just 20% more ($85.36). You would pay off your student loan earlier, in around eight years, and save $2,794.04 in interest (plus more than two years of your life).
Your monthly payment would then be $512.14. If that doesn’t sound like what you want, I wonder what it is. You might pay off your student loan even faster if you make more than 20% more on your minimum monthly payments. That’s exactly what I’m talking about!
A word of caution, though: If you pay more than the required minimum each month, the student loan servicers may roll the additional sum over to the following month’s payment. That will only delay the final due date; you won’t pay off the debt faster than normal, which somewhat defeats the purpose. Remember to inform your servicer that the additional funds you’re paying will be used to reduce your principal (but more on that in 7 below).
Mind you, it might be extremely difficult to pay extra if you find it difficult even to make the minimum payment each month, so you should work around what you are comfortable paying.
Use The Debt Snowball To Pay Off Your Student Loans Fast.
Many people have successfully cleared their debt using the debt snowball strategy, which also works for student loans. List all your loan obligations in order of least balance to most; include private loans, secured and unsecured loans, and anything else that must be repaid. Pay off the student loan with the lower balance first. Pay the minimum on all other debts while paying off your lowest loan with any extra cash you have.
Move on to the debt with the next-smallest balance after you’ve paid off the previous one. When you’ve paid off that debt, move on to another one and repeat this process until you’ve paid off all of your debt. That’s it.
You may think that it will rob you of your regular life. Technically, it won’t! Most individuals who fully commit to this approach pay off their debt within 18 to 24 months! The feeling of progress as each student loan is paid off is my favorite part of using the debt snowball strategy. Getting rid of the smaller loans first gives you a sense of accomplishment, which keeps you motivated to pay off the larger student loans as soon as possible!
As you pay off each loan, be careful not to keep the extra monies showing up for yourself. Roll that cash into the subsequent loan payment to maintain the momentum.
Use A Side Hustle To Increase Your Income.
If money is your main worry, get a part-time job on the weekends or at night to make money quickly. Then use the extra money to pay off your student loan as soon as possible! There are a lot of side business opportunities available, from Uber driving and food delivery to puppy walking and house watching. We have a list of side hustle ideas here!
And please don’t use the “I don’t have time for another job” argument. You sure have time to make a few extra dollars if you have time to spend with your friends, scroll through Instagram, or binge on Netflix shows.
Remember that you may not have to do the extra work forever. You’re simply trying to be committed and get rid of your student loan early so you can continue your life.
Use “Found” Funds.
If you receive a raise, a bonus for refinancing your student loans, or any other financial windfall, you may set aside at least some of it towards your early student loan repayment. Use the following breakdown: 50% of the additional income can be used to pay off debt, 30% can be saved, and 20% can be spent on enjoyable, discretionary expenses.
Make Additional Payments Properly.
There is never a penalty associated with making extra payments or early repayment of student loans. On the other hand, prepayment comes with a warning: the student loan servicer could take the extra money you pay and add it to the next month’s payment.
That moves the deadline for payment forward, but it won’t result in quicker loan repayment. Instead, tell your servicer to apply any overpayments to your current balance and to keep the next month’s due date as scheduled. You may contact them online, by mail, or by phone.
You can pay more at any time during the month or pay off your student loans in full on the due date. Either option can help you save a lot of cash.
As an illustration, suppose you had a $10,000 student loan debt with an interest rate of 4.5%. If you were on a 10-year repayment plan, you might clear your debt more than five years earlier by paying an extra $100 monthly.
Try To Pay Your Debts On Time Every Month While They Are Deferred.
You may have only started researching ways to pay off your student loan debt right after you graduate or a few months before graduation.
That is because your loans are in deferral, so you might not be required to start your loan payments while in school or for a short while after you graduate. Unfortunately, aside from subsidized direct loans, interest continues to accrue during your deferral period.
You should make some sizable payments while still in school. If it’s sizable enough, it will cover the interest expense on your student loan. That will prevent student loan interest capitalization, which occurs when accrued interest is added to the balance of your student loans.
Capitalization makes your loans more expensive since you eventually have to pay interest on interest. If you can at least cover interest costs while still in school, you can avoid paying extra interest.
Carefully Select Your Repayment Strategy.
Payback options for federal student loans include extended repayment plans. You should choose the normal payment plan if you’re trying to figure out how to pay off student loans fast. That will result in larger loan repayments than many other accessible plans, but it will guarantee that you pay off your debt in full within ten years.
If you have private debts, you must select your loan payback schedule when borrowing. If you’re trying to figure out how to pay off your private student loan quickly, get the shortest loan term you can afford. Since you’ll pay off your loan faster, you’ll usually pay less interest with a shorter loan period, but your monthly payment will be higher.
For student loan forgiveness schemes, look for temporary solutions like teacher loan forgiveness or Public Service Loan Forgiveness (PSLF). Some programs provide forgiveness after five and ten years. In contrast, normal loan forgiveness through income-driven repayment arrangements lasts 20 to 25 years.
Whenever Possible, Make Some Extra Lump-Sum Payments.
The majority of borrowers only pay the bare minimum each month. However, if you receive any unanticipated funds, such as a bonus at work, a windfall, or even a tax refund, use them to make additional student loan payments. Again, be careful to state that you want the additional funds to be used to lower your principal.
Look For Jobs At Companies That Offer Assistance With Repaying Student Loan Debt.
An increasing number of firms provide help with repaying student loans. Consider this throughout your job hunt if you need to know how to pay off student loans fast. This extra money can help you pay off your main sum more rapidly, so you can become debt-free as soon as possible if you can find an employer who contributes to your student loan payoff.
Sign Up For Automated Payments.
Federal student loan servicers may lower your interest rate by 0.25 percentage points if you set up autopay. Many private lending providers also offer a comparable discount.
That may not seem like much, but even a small decrease in your interest rate might make it simpler for you to pay down more principal and pay off your debts earlier. Even a slight rise in interest rates could significantly impact your debt if you owe a lot of money. This method is helpful, for instance, if you’re attempting to figure out how to pay off $100,000 in student loans.
Examine Your Refinancing Options
If you have high-interest student loans, refinancing can help you pay them off faster. You can find a new lender with better conditions or a cheaper interest rate by refinancing your student loans.
Use a refinancing calculator to determine how much refinancing could save you. If you got a $40,000 loan with a 7% interest rate and a 10-year duration, you’d have to pay $465 each month.
But then, your new monthly payment will be around $545 if you refinance to a 7-year term with a 4% interest rate, paying only $80 more. However, you’ll save $9,800 in interest and pay off your loans three years earlier.
However, refinancing has drawbacks, too, especially if you have federal loans. Federal loans that are refinanced turn into private loans and lose all of their advantages, such as income-driven repayment plans, extended forbearance and deferment periods, and loan forgiveness programs.
The government has also stopped collecting payments on federal student loans and frozen interest rates since the COVID-19 outbreak started. The same clause does not cover private loans.
You could refinance the private loans at a lower interest rate while keeping the federal loans in place if you have a combination of federal and private loans. You might get the best of both worlds with this.
Now you know how to pay off student loans fast—and somehow pay even less than you would have paid. Get to work today and start applying the various tips discussed here as they apply to you. Pay off that student loan quickly and keep every penny you earn to yourself.