Student loan debt in the U.S. has never been higher reaching $1.5 trillion this year. There are a couple of ways on how you can pay off your student loans but it’s crucial that you get to know how the system works.
Knowing the framework of student loans will enable you to understand the best strategies in paying it off. It will also give you a better understanding of just how important it is to create bigger payments early on.
Here are the three best ways to pay off student loans:
Pay More Than Your Minimum Due
Graduating with student loan is common in the US. However, what some students may not know is that student loan debt may be hurting them more than they think. The first best way to pay off student loan debt is to pay more than you should early on.
You are paying for two things when you are paying your student loan debt:
- Principal, and
When you pay your student loan debt, the amount that goes to the principal and the interest is not the same during the course of your payment. It’s not going to be a 50/50 split through and through.
How much do you think goes to the principal and how much goes to the interest during the early stages of paying off your student loan debt? While the bigger cut still goes to the principal, you still pay off a big amount to interest during the early stage.
The amount you pay to interest is larger in the beginning and gets smaller as you keep on paying your student loan debt. This is why it’s a good idea to pay more than your minimum due.
This is because the extra amount you pay goes directly to your principal. Your efforts of paying off more than your minimum due can shave off years of paying your student loan debt.
You can pay your student loan debt even before you have graduated. If you’re a working student, even just small pay payments to your student loans can make a great impact later on after you have graduated.
If you have multiple loans, prioritize paying off loans with higher interest rates first. Do this while paying extra for the principal.
Refinance Your Student Loan Debt
The best way to pay off student loans faster is by refinancing student loans. The principle of refinancing is simple. You pay off your student loans by having another student loan with a lower interest rate.
This just means repackaging your loans for you to pay smaller interest. However, there are requirements for you to get approved for student loan refinancing. These are the requirements:
- You must be employed
- You need to have good income
- A good credit score
- A good history of financial responsibility
One thing you have to know about refinancing though is that the federal government doesn’t refinance student loans. A private lender can be your solution for a lower interest rate. Being able to cut 3%, 2% or even just 1% from your interest can save you a lot of money.
Spend Less and Make More Money
Doing a bit of sacrifice each day can amount to long-term success. Spending less and making more money even while before graduating can help you extinguish your student loans.
You could even graduate without student loans if you make enough effort to pay it all off before your graduation. Spending less could mean not buying coffee, lowering your food budget or going out less.
You could be surprised with just how much you could save up. According to statistics 41% of those with student loans can’t afford a $400 emergency bill. Much less people can afford medical emergencies or home repairs.
Worrying about money also takes a toll on your health, studies, work and relationships. Being able to spend less and save up can be a hard challenge but it all pays off.
Coupled with earning more by working, being able to pay off your student loans is guaranteed. You just have to make the necessary sacrifice to do it.
BONUS: Educate Yourself on Finance
It’s never true that you don’t have enough time to pick up and read a book or do research on a certain topic. All of us, including the most successful people only have 24 hours each day. The trick is to be able to manage those hours in a way that can propel you towards your goals.
If you read and research about finance, you’ll develop skills that will greatly help you out in life. More than one in every 4 americans have student loan debt. According to the U.S. Census Bureau, Americans between 20 and 59 have active loan debts.
What this tells you is that some people end up still trying to pay off their student loans until the age of 59. If you equip yourself with the proper financial knowledge and skills, you won’t have to work for most of your life just trying to pay off student loans.
There are many other different approaches on how you can pay off student loans. These are but 3 ways on how you can do so. With this article, we hope you learned something new that you can apply right away to crush your student loans. We wish you well.