How to Pay Off Student Loans QuicklyEmail This Article
For many of us, college came with a price tag in the form of student loan debt. Recent college graduates, and even those who have been out of school for some time, are always looking for a way to knock out the debt that may be delaying other life goals, like marriage, purchasing a home, saving for retirement, or starting a family. We’ve reached out to borrowers like you and assembled a list of strategies to leverage in paying off student loans.
1. Sign up for Automatic Payments
Many lenders offer a small interest rate reduction (example: 0.25%) just for enrolling in automatic payments. This can help prevent missed payments (and the associated late fees and penalties), while also keeping your credit score healthy.
2. Make More Than the Minimum Payment
The minimum payment is the least amount of money you need to pay each month. There are no pre-payment penalties with student loans, so even an extra $20 or $30 a month can make a difference. You will pay your loan off faster, reducing the overall amount you pay in interest.
3. Put Extra Money Toward Your Student Loan Debt
In the same vein, put any extra money you come into toward your loans. If you get a tax refund, or a bonus at work, consider putting some or all of that money toward your debt. “Every extra dollar I made went into a savings account focused on paying back loans. If I won a silly bet for $5 or $10 - savings account. If I got money for Christmas or my birthday, it went into the savings account,” says Nathan, who paid off $50,000 in student loans in two years.
4. Choose Your Debt Acceleration Tactic
- Pay Highest Interest Rates
First This is also called the “debt avalanche” method, where you make the minimum payments on all of your loans except the one with the highest interest rate. Targeting the loans with the highest interest rates first and putting as much money as you can toward those debts means not only will you pay those off faster, you’ll save more money on interest.
- Pay off the Lowest Balance First
This one is often referred to as the “debt snowball method.” There’s nothing like that sigh of relief, especially when you feel like you’re drowning. With this approach, you pay off the debt with the lowest balance first. Mentally, this can give you a feeling of accomplishment to build on. List out all of your loans in order of balance from smallest to largest and work your way down the list. Each time you pay off a debt, roll the amount you were paying into the next loan on your list.
5. Consolidate or Refinance
Consolidating or refinancing multiple loans into one new loan is a great options for paying off student loans faster. This reduces the number of bills you need to keep track of per month, which can be a relief in itself for some borrowers. If you chose to refinance, you may also be able to get a lower interest rate, allowing you to chip away at the principal faster, potentially costing you less overall.
If you’d like more details on these options, we cover them in depth our article How to Consolidate or Refinance Student Loans.
6. Create a Budget Built for Success
If you’re serious about paying off your student loans, taking an aggressive approach is the best way to do it. Driving a cheaper car, moving into a less expensive house or apartment, and avoiding splurges are key to freeing up more money to tackle debt. “I was really against moving home, but putting my ego aside allowed me to pay off my loans faster than I could ever imagine,” Haley says, who paid off $29,000 in one year.
Even if you’ve already cut spending on big-ticket items there are so many small things you can do. By creating an honest budget, you can see where your earnings are actually going, and find categories (like entertainment, vacations, shopping, etc.), where you can spend less.
7. Take on a Side Hustle
What do you do when you’ve trimmed your budget as much as you can and have maxed out the amount of money you have to put toward your loans? Earn extra money. Whether it’s working for a ride share service, an evening or weekend retail job, or taking on freelance clients in the same field as your day-to-day job, that extra money can make a huge impact on your loan balances.
“We have several side hustles - a few examples: we take photos for people, we sell things online, we take on clients on the side, babysit, almost anything to make extra money here and there,” Amber shares, who, with her husband, is tackling $600,000 in student loan debt.
It Starts with Your Mindset
Paying off student loans can seem daunting. But once you mentally commit to making it a priority, there are several ways to tackle your college debt that put you in charge of your money and your future!