Lori Meadows
Student loan debt is a burden for many, with millennials taking on debt at a faster rate than older generations. While it may seem daunting, there are several strategies to help pay off student loans faster and save money. Firstly, it is important to understand that interest accrues daily and borrowers can expect to pay more than the original amount borrowed. To save money, it is recommended to pay off loans with higher interest rates first and make extra payments where possible. Setting up automatic payments can also help lower interest rates. Additionally, some lenders offer discounts for automatic payments or grade-point averages. Taking on side gigs or starting a business can provide extra income, and rebate programs like Rakuten and Upromise can help save money on shopping that can be put towards loan payments. Lastly, tax refunds and loan forgiveness programs can also aid in paying off student loans faster.
| Characteristics | Values |
|---|---|
| Extra payments | Can save time and money on interest |
| Refinancing | Can save money on interest on private loans |
| Student loan payoff calculator | Can help you see how fast you can pay off your loans with extra payments and how much money in interest you’d save |
| Autopay | Can lower your student loan interest rate so that more of your money goes toward your principal balance |
| Federal student loan servicers | Offer a quarter-point interest rate discount if you let them automatically deduct payments from your bank account |
| Direct debit | Another term for autopay, which is offered by all federal direct loans and many private lenders |
| Tax refund | Dedicating your tax refund to paying off some of your student loan debt |
| Loan forgiveness and repayment programs | Available for teachers, public servants, members of the United States Armed Forces, etc. |
| Rewards credit cards | Can be redeemed for cash toward your student loan balances, either directly or indirectly |
| Websites | Upromise and Rakuten allow you to earn cash back when you shop, which can be used to pay off your student loans |
| Side gigs | Taking on a side gig can help you earn extra cash to put toward your loans |
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What You'll Learn
Set up direct debit to save on interest
Setting up direct debit payments is a great way to save money on interest and pay off your student loans faster. Here are some reasons why:
Avoid Overpayment and Late Fees
Student loan interest accrues daily, so the faster you can pay off your loan, the less interest you will pay overall. Direct debit payments are taken automatically from your bank account each month, ensuring that you make payments on time and reducing the risk of late fees.
Take Advantage of Discounts
Federal student loan servicers often offer a quarter-point (0.25%) interest rate discount if you sign up for automatic debit payments. While the savings from this discount may be minimal, it can still help when combined with other strategies. Many private lenders also offer auto-pay deductions, so be sure to contact your servicer to enroll or find out if an autopay discount is available.
Maintain Control Over Your Payments
With direct debit, you can choose to pay more than the minimum amount, helping you get ahead on your loan. Additionally, if you can afford to make extra payments, instruct your servicer to apply them to your highest-interest loans first to maximize your savings.
Avoid Tax Complications
Direct debit payments are deducted after tax, so you won't be taxed more than you already are. This means that switching to direct debit may result in a higher net income.
Stay Informed and Organized
Direct debit payments provide a clear record of your transactions, making it easier to keep track of your payments and balance. This can help you avoid overpayment, which commonly occurs when records are not updated promptly.
Setting up direct debit is a simple yet effective way to streamline your student loan payments and save on interest. By taking advantage of this option, you can make faster progress towards becoming debt-free.
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Take on a side gig
Taking on a side gig is a great way to make some extra cash to put towards paying off your student loans. Here are some ideas for side hustles that can help you boost your income:
Online Surveys
Online surveys are a simple way to make some extra money. While they often don't pay much, you can sign up for as many survey sites as you wish to increase your overall income. Just be cautious of scam sites and be sure to research the employer carefully before signing up.
Sell Your Skills
Examine your hobbies and skills to see if there is a way to monetize them. For example, if you are a talented baker or cake decorator, you could sell your baked goods. Reach out to local shops to see if they would be interested in selling your products. Artistic skills like painting can also be a great way to bring in some extra cash.
Modelling
If you're comfortable in front of the camera, consider signing up with a local modelling agency. You will need to sign up for a talent website and get some professional photos taken, but this can be a fun and lucrative side gig.
Dog Sitting
Dog sitting can be a great way to make some extra money, especially during the holidays when it is the busiest season. However, you will need to commit your schedule months in advance and be prepared to work on holidays.
Donate Plasma
Donating plasma won't make you rich, but if you donate regularly, it can provide a consistent amount of extra money that you can put towards your student loans.
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Use cash back and rebate websites
While paying off student loans can be a daunting task, there are several strategies to help you manage your debt more effectively. One such strategy is to take advantage of cash-back and rebate websites. These sites offer incentives and rewards that can supplement your income and help accelerate your loan repayment journey.
Cash-back and rebate websites essentially pay you to shop online. They earn an affiliate commission from retail websites and, in turn, share a portion of that payment with you in the form of cash back. This means that these sites are free for you to use, and you can make money while spending it. For example, buying clothes on Amazon through a cash-back site might earn you 8%, while purchasing cat food may earn you 1%.
To get started, you can sign up for a cash-back website such as RebatesMe or Rakuten. These sites often offer welcome bonuses, like the $5 bonus RebatesMe offers when you earn your first $10 in cash back. They also have low minimum thresholds for withdrawing your earnings, making it convenient to access your money. Additionally, these sites offer cashback protection programs, ensuring that you receive your cashback even if something goes awry during the purchase process.
When using cash-back and rebate websites, it's important to understand how they work. Typically, you'll receive a "special link" with a tracking code or an "affiliate link." This allows the site to track your purchases and confirm them with the retailer before giving you your cash back.
While cashback sites can be a great way to earn extra money, it's worth noting that the earnings vary depending on your spending amount and the retailer. Nevertheless, with consistent use and strategic shopping, cashback and rebate websites can provide a substantial boost in your efforts to pay off student loans faster.
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Dedicate your tax refund
One of the ways to pay off your student loans faster is to dedicate your tax refund to paying off some of your student loan debt. If your federal loans are in default, the government can withhold your tax refund and apply it toward repayment. Federal student loans typically enter default after 270 days of past-due payments, and if you are behind on your payments for 90 days, the loan servicer will report the delinquency to the three major credit bureaus, which could damage your credit rating. If your tax refund is subject to garnishment, you’ll receive a letter from your loan holder, and your student loan holder will send you a tax offset notice before your refund is seized. If you have already fully repaid the debt, you should receive your entire refund.
It is important to note that you cannot deduct student loan payments on your taxes. Only the interest paid is deductible, and even that is capped at a certain amount per year and subject to income limits. This means that the interest you pay on your student loans can be deducted from your taxable income, lowering your tax burden. However, there are limits to how much you can deduct, and these limits depend on your income and other factors.
Additionally, if you have multiple loans with different interest rates, focus on paying off the higher-interest loans first. Making extra payments can help you save money on interest and get out of debt faster. You can also consider signing up for autopay to lower your student loan interest rate and have more of your money go toward your principal balance. Federal student loan servicers often offer a quarter-point interest rate discount if they automatically deduct payments from your bank account.
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Prioritise paying off higher-interest loans
When it comes to paying off student loans, it's important to be strategic about it. One effective strategy is to prioritise paying off higher-interest loans first. Here's why this approach makes sense and how you can implement it:
Understanding Interest
Interest is the cost of borrowing money, and it accumulates over time. The interest rate is a percentage that represents how much extra you'll have to pay on top of the original loan amount. Higher interest rates mean you'll end up paying more in the long run. Student loan interest often starts accruing daily from the day the loan is disbursed.
The "Avalanche" Method
Prioritising paying off higher-interest loans is commonly known as the "avalanche" method. This strategy involves making the minimum monthly payments on all your debts but putting any extra money you can towards the debt with the highest interest rate. By tackling the costliest debt first, you can save money and reduce the overall cost of your debt.
Advantages of the Avalanche Method
The biggest advantage of the avalanche method is that it saves you money. By focusing on high-interest loans, you prevent the interest from accumulating and adding significant expense to your original debt. Additionally, paying off higher-interest loans first can result in one less monthly payment to worry about.
Implementing the Strategy
To implement this strategy, start by listing all your loans and their respective interest rates. Make sure you're making at least the minimum monthly payments on each loan. Then, focus any extra funds you have on the loan with the highest interest rate. Once that loan is paid off, move on to the next highest-interest loan, and so on.
Combining Strategies
You can also combine this strategy with other approaches, such as making extra payments whenever possible. Signing up for autopay can also help lower your interest rate slightly, and you can instruct your loan servicer to apply overpayments to your principal balance. Remember to stay in touch with your servicer and keep them updated with any changes to your contact information.
By prioritising paying off higher-interest loans, you can take control of your student debt and save money in the long run. This strategy is a smart way to manage your finances and accelerate your journey towards becoming debt-free.
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Frequently asked questions
You can take on a side gig or start a business to bring in extra income. You can also make use of rebate programs and cash back rewards from credit cards.
You can make extra payments at any point in the month or make a lump-sum payment on the due date. You can also use a student loan payoff calculator to see how much extra you need to pay to get rid of your loans faster.
You can save on interest by signing up for automatic payments from your bank account. Most federal student loan servicers offer a quarter-point interest rate discount for this.
You can lower your monthly payments by paying off higher-interest loans first. You can also refinance your loans to save on interest, especially on private loans.
You can dedicate your tax refund to paying off your student loan debt. You can also use any "found money", such as gifts or unexpected income, to make additional payments.
