How to Pay Off Student Loans Fast
Unfortunately most of us will require some sort of education to build a better life, it is also equally unfortunately that most of us will pull a student loan to do so. Paying off student loans quickly requires a combination of financial discipline, strategic planning, and potentially some sacrifices. This article will cover the dos and don'ts of paying off student loans.
Create a Budget:
Start by creating a detailed budget that outlines your income and expenses. Identify areas where you can cut back on spending to allocate more money toward your student loans. Creating a budget is key to creating a system of consistent payments without affecting your lifestyle. In my personal opinion, you should dedicate most of your free funds to try to pay off these debts as soon as possible.
Any debt containing an interest rate of higher than 5% should be considered dangerous due to the idea that the common forms of investment usually gives you back a return of 5-10% annually. With the debt interest and investment return being on par, chances are the debt you have will cancel any form of investment you will gain in the long run.
However, if you aren't able to pay off the debt as soon as possible (such as in the case of a mortgage and student loans), keep in mind the "28/36 rule". According to this rule, no more than 28% of your gross monthly income should be spent on housing costs, including rent or mortgage, property taxes, homeowners' insurance, and homeowners' association fees. On the other end of the spectrum, this guideline also suggests that your total debt payments should not exceed 36% of your gross monthly income, this includes your housing costs (mortgage or rent) and all other debts such as student loans, credit card debt, car loans, and personal loans. Depending on your lifestyle and income, changes must be made to accommodate the 28/36 rule to pay off student loans quickly. The following points will give you an idea of how to meet that rule and happily exceed it.
Consider adopting a frugal lifestyle by cutting unnecessary expenses such as dining out, entertainment, or luxury purchases. Redirect these funds toward your student loans. Even though it is easier said than done, the best way to accomplish this is to supplement these activities with equally rewarding ones that are budget-friendly. Instead of dining out, try out cooking delicious food from home. Instead of going to the movies every weekend, try indulging in cheaper options like YouTube surfing or affordable subscription plans like Disney Plus and Apple TV.
Increase Your Income:
Look for opportunities to increase your income. This includes taking on a part-time job such as applying for Uber or Amazon Flex which can be easily done in your off time. Freelancing is also an option, with working from home getting normalized, getting gigs on Fiverr and flex jobs have become more commonplace. Another option is finding a higher-paying job, studies show that working at your primary occupation for at least two years will grant you enough experience to either be promoted or enable you to jump to a higher-level position within a different company. Use this idea to your advantage, unfortunately most companies do not believe in inflation and will happily pay you the same salary till the day you die.
Make Extra Payments:
Pay more than the minimum monthly payment. If you can, make additional payments whenever you have extra money, such as a tax refund, work bonus, or a cash gift. You can also sell off personal belongings on online selling platforms such as Offerup and Craigslist to help pay off student debt. Things such as old collectibles and outdated hardware can be sold, I myself have gotten rid of monitors and computer desktops that I don't use anymore which I cashed in for a couple hundred dollars. It is best to try to give up the hoarder mindset if you have debt.
Snowball or Avalanche Method:
Choose a debt repayment strategy. The snowball method involves paying off the smallest loans first, including small credit card debt and immediate repayments. while the avalanche method targets the loans with the highest interest rates first. Both strategies can be effective, so choose the one that suits your preferences and financial situation.
Loan Forgiveness Programs:
Investigate if you qualify for loan forgiveness or income-driven repayment plans. These programs can reduce your monthly payments or forgive your debt entirely if you stick to it for a certain amount of time.
To find out more check out the federal student aid website at https://studentaid.gov/manage-loans/repayment/plans. Make sure to look for plans that offer loan forgiveness to avoid paying off the full loan amount if your debt is substantially high. In these instances, the government is completely fine if you don't pay off the loan in full, as long as you stay consistent in trying to pay it off. This is usually granted to you if you have been consistent for 20 to 30 years.
This is also fine if you are on a private loan as the federal student aid office will help you relieve you off of your original private loan to be initiated on their government-based repayment plan.
Avoid New Debt:
Avoid accumulating more debt, especially high-interest credit card debt, while you're paying off your student loans. High-interest debt can come in the form of any credit card debt that can't be paid off within the first payment cycle. Usually, they ask for an interest rate of 15-25% if not paid off immediately so be careful.
Other debts to worry about it hard money loans which can have interest rates as high as 50%. Although such loans can be useful when bypassing certain challenge in purchasing valuable assets and property, It is highly discouraged for the uninitiated, especially those with unpaid debts.
Seek Employer Assistance:
Some employers offer student loan repayment assistance as part of their benefits package. Especially if you are currently working with high-profile companies or government agencies, you will probably have some type of compensation in this department. Check with your employer to see if you're eligible for such a program.