Ben Todd | Apr 16, 2017 | 3
How to Pay Your Student Loan Faster
Pay off your student loan faster and you will be able to start saving to buy a house, you will be able to start your wealth building efforts, and you will be able to start a family earlier. Your student loans are like a mortgage without the house, especially when you consider that many people’s student loans would easily cover the purchase of an apartment or house. Pay off your student loan faster, and you will be able to get on with your life a little sooner.
How To Pay Your Student Loan Faster
The principle behind paying off your student loans sooner is to pay more than the set monthly installment for your student loan. The key is not to pay what they tell you, the key is to pay extra, and hopefully pay more and more at an accelerated rate.
Dropping Your Change Into Your Account
This is a really easy way of accelerating the rate at which your student debt is paid, and yet so many graduates overlook it because it seems too small and ineffective. The trick is to put your change into your debt account whenever you have it in your account.
Set up a bill payment and/or instant transfer function on your online bank account. Make it so that you are able to send amounts from your bank account to your student debt account while using your online banking platform.
Whenever you have spare change in your account, you send the change to your student debt account. Round your account to the nearest ten dollars whenever you check your online account.
Putting Your Loose Change In Your Account
For example, if you check it today and it says there is $234.54 in your account, then send $4.54 from your bank account to your student debt account, so that it leaves $230 in your bank account.
Let’s say that you have student debt of over $53,000 at graduation that takes 21 years to pay off with a monthly payment of $235 and a total repayment amount of over $61,000.
If you were to put an average of just $5 (half way between $10 and $0) on to your debt every month for the 21 years, it would knock off $1260 from your debt. That would lower your repayment time by around half a year, and that is only if you put your spare change into your debt account once every month.
Assuming you are still paying your set installments, if you were to put your change onto your debt just once per week, at a rate of between $0 to $10 (an average of $5 per week), then it would knock off around $5460 from your debt, which is almost two years. That is how you pay your student loan faster without having to work too hard.
What If You Want To Work Hard?
If you have a full-time job, but you do not want to increase your payment amount from your regular full-time wage, then you may be tempted to start a part-time job to pay off your student loan faster. It is very simple and plenty of people do it. You work your full-time job during the week, and you work your part-time job during the weekend. Most people can manage an extra sixteen hours per week in part-time work. Take your wages and add them to your student loans.
Putting money from your part-time job into your student loans is a very aggressive way to pay off your student loans. There are people who will tell you that you are silly to pay off such a low-interest loan more quickly, but any form of debt is contrary to your wealth building plans and goals. It is better to get your debt out of the way so that you need not get into it again.
Let’s Do The Math Again
Your student debt is $53,000 at graduation, it takes 21 years to pay off, your monthly payment is $235 and your total repayment amount is over $61,000.
Your part-time job may pull in a very modest $1000 per year, which is not very much at all. However, you have to remember that each year you are already paying almost $3000 per year according to our example.
Your $1000 per year comes to an extra $83 paid onto your student loan every month. If you were to do that, you would have your student loans paid off in 15 years, and your final debt amount would drop from over $61,000 to around $59,000. By getting a part-time job on a weekend, you can knock six years off your student debt repayment.
For those of you that complain that there are no part-time jobs…there really are, but they are unglamorous and unpopular, and in some states they are dominated by people with a Hispanic genealogy. If you do not consider yourself above washing cars, picking oranges, leaf blowing and so forth, then you will be able to find a part-time job. If you can find one that works on commission, then a painfully hard day’s work can earn you more than minimum wage.
Set Up Automatic Payments And Forget Loan Forgiveness
You will be unable to pay off your student debt faster if you apply for student loan forgiveness. Unless you are working as a civil servant, the loan forgiveness scheme is not for you.
If you do not want to work within a number of civil servant jobs, then you will have to go one of the other routes for loan forgiveness. That includes spending twenty years working crappy jobs for a poor wage until you finally qualify for forgiveness. If you would rather not go the route of keeping yourself poor for 20 years, you can pay off your student loan faster and start some serious wealth building instead.
Setting up automatic payments (also known as direct debits) is one way of ensuring you pay off your student loans as per the schedule. They help you avoid forgetting about your student loan payments. They keep you up to date with your current student loan payments. There is no point in trying to pay off your student loan faster, if you are silly enough to miss your already-arranged debt repayment instalments.
Cut Your Budget A Little
You don’t have to suffer for years by eating rice pudding and tins of beans. You should be able to cut your budget in a number of areas without feeling any negative consequences. For a start, you could decide to walk more places and drive a little less to save on gas money. The amount that you are paying in federal and state taxes for your gas is nutty at the best of times, so do yourself a favor and stop using your car as much.
You could stop your gym membership and do a little more running around your area and working out in your own home. You could stop going out as often, and you could probably stop buying as many clothes as you do.
There is no need to make big and dramatic changes in the way you live. Small changes will lead to small savings that you are able to collect and put towards your student loans. All of these small savings will have a cumulative effect that helps you pay off your student loan faster. In addition, when you are finished, you may pay off your mortgage using similar techniques.
Maybe You Could Refinance Your Student Loan
It may be possible to save money on your student loan by refinancing it so that you are paying less interest. If you have a federal loan (a direct loan), then there is a good chance you already have a very low interest rate. Nevertheless, it may be possible to lower your interest rate even further.
As you grow older and use credit a little more, your credit rating improves. As your credit rating improves, the chances of a successful refinance will improve. The better your credit rating becomes, the more likely it is that your student loans may be refinanced with lower amounts of interest.
If you are paying less interest, then you are paying less money in total, which means you will be able to pay off your student loan a little quicker. If and when you refinance your student loan, you must firstly remember that it is not worth doing if you are not receiving a significant saving on your interest rate.
You should also remember that refinancing is not an opportunity to take it easy. If the new deal asks if you would like to pay less per month, then you should say no (unless you are really struggling to make the payments). If you refinance and agree to pay lower amounts per month, then it will take you longer to pay off your debt. You should ask for your monthly payments to be increased when you refinance, so that you may pay off your student loan even quicker than you were before.
Conclusion – Little Bits Here And There Will Pay Off Your Student Loan Faster
If you want a painless way to pay off your debt, then save little bits and there. So true and so perfect is this conclusion headline that you can apply it to all areas of your financial life. You can try the same tricks when you are saving to buy a house without a mortgage, when you are saving seed money for shares, or when you are saving for a car.
Contribute small amounts to your student loans (add them to the standard debt payments that you make every month), and those odd small amounts will add up. Plus, the beauty of the techniques listed in this article is that they may apply to other avenues of your life, and you may try them while repaying your student debt, and you do not have to pay early-repayment fees or penalties.