Ibrahim Gardner
Student loan debt is a burden carried by many, with some surveys reporting that 68% of 33-40-year-olds are still paying off their student loans. While it may seem like a daunting task, there are several strategies that can help you pay off your student loans faster. The most effective method is to pay more than the minimum each month, which reduces the principal amount and saves on interest. Other approaches include refinancing loans to get a lower interest rate, taking on side gigs, living frugally, and enrolling in autopay to guarantee payments and maintain a good credit score.
| Characteristics | Values |
|---|---|
| Repayment plans | The U.S. Department of Education offers several repayment plans, including income-driven repayment (IDR) plans and loan forgiveness programs. The standard repayment plan is 10 years, but IDR plans can extend the payoff timeline up to 20 or 25 years. |
| Extra payments | Making extra payments beyond the minimum can significantly reduce the repayment term and interest charges. |
| Autopay | Enrolling in autopay with your loan servicer guarantees timely payments and can provide a 0.25% interest rate discount. |
| Refinancing | Refinancing student loans involves taking out a new private loan with ideally a lower interest rate and a shorter term, which can help pay off debt faster and save on interest. |
| Side gigs | Taking on side gigs or starting a business can provide extra income to put towards loan payments. |
| Budgeting | Creating a budget and living frugally can help allocate more funds towards loan repayment. |
| Loan consolidation | Consolidating multiple loans into one can simplify repayment and potentially lower interest rates. |
| Credit score | Maintaining a good credit score can provide access to more affordable credit options with lower monthly payments. |
| Loan forgiveness | Federal student loan forgiveness programs may be available for those experiencing financial hardship. |
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What You'll Learn
Pay more than the minimum each month
Paying more than the minimum each month is a surefire way to pay off your student debt faster. The more you pay towards your loans, the less interest you'll owe, and the quicker the balance will disappear. For example, if you owe $20,000 with an average interest rate of 6.5%, your monthly payment would be $227.10. By adding just $25 to your monthly payment, you'd finish paying off your debt 16 months early and save nearly $1,000 in interest. If you added $50 per month, you'd finish over two years early and save over $1,800 in interest.
However, it is important to note that making extra payments is not the only way to get ahead of your student debt. You can also instruct your servicer to apply overpayments to your principal balance and to keep the next month's due date as planned. This is because advancing a student loan due date will not help you pay off your student loans faster, as your extra payment will first go to any late fees and accrued interest before hitting your principal.
If you have multiple loans with different interest rates, it is recommended to pay off the higher-interest loans first. This will help you save money. For example, if you owe $10,000 with a 4.5% interest rate, by paying an extra $100 every month on a standard 10-year repayment plan, you would be debt-free about five and a half years earlier than planned.
Additionally, if you are unable to make extra payments, the fastest way to pay off federal loans is to stay on the standard repayment plan. The government automatically puts federal student loan borrowers on a 10-year standard repayment plan, which splits your total debt (plus interest) into 120 monthly instalments spread over 10 years.
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Take on a side hustle
Taking on a side hustle can be a great way to pay off student debt fast. A side hustle is any work you do to earn money outside of your primary job, and it can provide you with extra income to put towards your student loans. Here are some tips and ideas for using a side hustle to pay off your student debt quickly:
Pick Something You Enjoy and Are Good At
It's important to choose a side hustle that aligns with your interests, skills, and lifestyle. This will help you stay motivated and make it easier to devote time and energy to your side hustle. For example, if you have a passion for sports, you could coach others and get paid for it. If you're good at writing, you could try freelance writing or start a blog.
Find Something That Fits Your Schedule
Consider how much time you can realistically devote to your side hustle. Look for opportunities that fit your schedule. For instance, you could try tutoring a few hours a week, doing freelance work on weekends, or reselling items online in your free time.
Set Clear and Specific Goals
Give yourself a clear goal and timeline, such as earning an extra $500 a month after taxes to pay off your student loans 30 months earlier. This will help you stay focused and motivated. Remember to be realistic and achievable with your goals, and don't set yourself up for failure.
Be Consistent and Discipline Yourself
Stay disciplined by putting all your side hustle earnings directly towards your student loans. This may require some sacrifice, but it will help you make faster progress. Consistency is key, so stick to your plan and don't be tempted to spend the extra money elsewhere.
Some Side Hustle Ideas Include:
- Delivery services like Uber or Doordash
- Reselling items online or through apps like Sharetown
- Freelance writing, editing, or other skills like graphic design or web development
- Teaching online courses or tutoring
- Selling handmade items, baked goods, or other crafts
- Pet-related services like dog walking or pet sitting
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Refinance your loans
Refinancing your student loans is a great way to pay off your debt faster. It involves taking out a new loan from a private lender to pay off your existing federal or private student loans. While many people refinance to get a lower interest rate or combine multiple loans into one, you can also do it to get a shorter loan term.
When you refinance your student loans, you replace one or more existing student loans with a new loan, ideally at a lower interest rate. This can help you simplify your debt and reduce the amount you pay over time. If your credit and income have improved since you borrowed, you might qualify for a lower rate, potentially saving you thousands of dollars in interest.
To qualify for student loan refinancing, lenders typically require a credit score of around 670 or higher, along with a steady and verifiable income, and a low debt-to-income ratio. It's important to note that refinancing your student loans may not be the best option for everyone. For example, if you refinance federal loans with a private lender, you may forfeit your eligibility for federal loan benefits, including flexible repayment and forgiveness options.
However, if you have private student loans, good credit, and a stable income, refinancing could be a good choice if you can secure a lower interest rate. By refinancing, you may be able to reduce your monthly payments, pay off your debt faster, and save money by paying less interest over the life of the loan.
Overall, refinancing your student loans can be a powerful tool to help you pay off your debt faster and save money in the process. It's important to carefully consider your options and ensure that you qualify for a lower rate before deciding to refinance.
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Live frugally
Living frugally is a great way to save money and pay off student debt faster. Here are some tips to live frugally and reduce expenses:
- Maintain a college student lifestyle: Live as if you are still a college student with limited means. Avoid inflating your lifestyle and spending more just because you earn more. Pretend you earn less and send the extra money towards your loans.
- Pay more than the minimum: While it may be challenging, paying more than the minimum amount due each month can significantly speed up debt repayment. Even an extra $20 or $100 a month can make a difference. Ensure that any additional payments are applied to the loan principal to reduce the interest paid over time.
- Side gigs and extra income: Consider taking on a side hustle or a part-time job to boost your income. For example, you could offer freelance services, work part-time in a cafe or restaurant, or drive for a ride-sharing service. Any additional income can be directed towards your student loans.
- Cut down on expenses: Look for ways to reduce your monthly expenses. This could include cooking at home instead of dining out, choosing a cheaper cell phone plan, or opting for public transportation instead of a private car. Small changes can lead to significant savings over time.
- Sell unwanted items: Go through your belongings and identify items you no longer need or use. You can sell these items online or at a garage sale to generate extra cash. This money can then be used to make a lump-sum payment towards your student debt.
- Refinance your loans: If you have good credit, consider refinancing your student loans to get a lower interest rate or a shorter loan term. Refinancing involves taking out a new loan from a private lender to pay off your existing federal or private student loans. While it may result in larger monthly payments, you could cut down your repayment timeline significantly.
By adopting a frugal lifestyle and combining it with other strategies, such as side gigs and refinancing, you can accelerate your student debt repayment and achieve financial freedom faster.
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Get a higher-paying job
Getting a higher-paying job is a great way to help pay off your student debt faster. There are many career paths that can help you achieve this, and some companies even offer student loan repayment benefits.
If you are a recent graduate, consider careers that offer a high starting salary. For example, physicians, surgeons, anesthesiologists, and GPs can expect a first-year salary of around $210,000. Other medical professionals, such as pharmacists, can also command high salaries, earning around $120,000 per year. A career in computer systems or information technology management can also be lucrative, with salaries reaching $125,000 annually.
You can also look for jobs that offer student loan forgiveness or repayment assistance programs. These programs are often available for government workers, such as those employed by NASA, the Department of Energy, or the Department of Transportation. Working in the public service sector, including law enforcement and social work, may also provide access to repayment assistance. Additionally, some companies in the private sector, such as Ally Financial, Andersen Global, Carvana, Chegg, and Fidelity Investments, offer student loan repayment benefits to their employees.
While negotiating your compensation, don't be afraid to ask your employer about student loan repayment opportunities. If they don't currently offer any programs, suggest the idea and ask to revisit the conversation in six months to a year. In the meantime, focus on proving your value to the company and showing them that investing in your financial well-being is worth it.
Remember that a higher-paying job is just one part of the equation. Combining it with other strategies, such as living frugally, making lump-sum payments, and taking on side gigs, can further accelerate your student debt repayment.
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Frequently asked questions
Paying more than the minimum amount each month is the fastest way to pay off your student debt. The more you pay, the less interest you'll owe. You can also refinance your student loans to get a lower interest rate and a shorter loan term.
Refinancing your student loans means taking out a new loan from a private lender to pay off your existing federal or private student loans. By choosing a new loan term that is less than what's left on your current loans, you can pay off your debt faster and save money on interest.
You can get a side hustle to make extra money, live frugally and put any windfalls, tax refunds or bonuses towards your debt. You can also set up autopay to ensure you never miss a payment and potentially get a 0.25% interest rate discount.
The U.S. Department of Education offers several repayment plans, including income-driven repayment (IDR) plans that can lower your monthly payment based on your income. The federal government also offers loan forgiveness programs for certain borrowers.
