Student loans allow students to get low-interest loans to cover their college and university expenses. According to the US Department of Education there are $1.6 trillion in student loans outstanding that have been taken by 45 million borrowers in the USA. The spiraling cost of education has made loans a necessity for most students. A Pew research center analysis shows that, one third of adults who are below 30 years of age have an outstanding student loan debt. The Pew study showed that around 3 out of 10 students with an outstanding loan say that they are living comfortably. On the other hand, 5 out of 10 students who had not taken a loan said that they were quite comfortable.
These statistics prove that taking loans has become inevitable for most students. Repaying them also takes some time, and this is a significant burden on the student. Repaying the loans slowly however can be a big mistake. The more the time students take to repay the loan, the more the interest needs to be repaid. There are other downsides to delayed loan repayment which include:
- When you don’t repay a loan quickly, the extra interest you are paying affects your savings. The money that you are paying as interest could have been saved for a rainy day.
- Clearing of past debts allows you to be eligible to get a new loan. If you want to buy a new car, for instance, having too much debt can make a lender think twice before lending to you.
- It goes without saying that repaying a loan early helps boost your credit score. This puts you in a good position if you want to take a loan or get a credit card.
- You are under the constant pressure of trying to repay the loan. This stress can affect you on a personal level.
It makes sense therefore to pay off your student loans as fast as possible. However, most of those struggling with student loans would indeed like to reduce their debt burden, just don’t know how to do so. So, we’ve examined the strategies that can help. We also delve into how paying off student loans faster helps in several situations, including when you are trying to get a mortgage for a house.
- Combine loans and opt for refinancing
Saving more money is a key factor when you want to pay off student loans faster, and one way in which you can achieve this, is by refinancing. When you opt for refinancing, combining all your loans into one allows you to pay a lower interest rate. By paying less interest you can put the money saved towards repaying the principal amount.
- Do not splurge after leaving college
Once you graduate from college, you may be tempted to splurge and rent an apartment for yourself, which can put undue burden on your paycheck. Instead of doing this, you can consider making small sacrifices to save money. You can stay in a shared accommodation with friends to save money that can be used to repay your debt.
- Take up extra work
Getting a job that pays a high salary is usually difficult straight after graduating. That’s what makes paying off student loans a lengthy process, people are saddled with them for several years. Therefore, it is ideal that fresh graduates do extra work, or take up a second job as this will help them earn more every month.
- Start paying off loans in college
Student loan payments are due once you leave college, however, you can start the repayment process while studying. This early repayment of student loans is possible if you have a part time job while you are studying. An important benefit of repaying loans early is that the interest you will have to pay down the line will be smaller.
- Plan to make two payments per month
If you are aiming to pay off your student loans faster, then you must consider trying to make two payments on your student loan. By making two instead of one, or simply making several random payments, you end up repaying loans faster.
- Ensure you exceed the minimum payment per month
Paying more than the minimum due every month is another strategy for dealing with student loans. However, you do not have to earn a higher salary per month to make higher payments. Instead, you can put off buying a new car or use tax refunds to ensure that you have enough for making a higher payment.
- Pick a shorter-term for repaying the loan
By picking a short term for repayment, as in two years instead of three, you will be able to get a lower interest rate. Getting a lower interest rate is a major benefit and something you should aim for when refinancing a student loan.
- Use any gains or windfall wisely
In case you get some additional money, which may be a bonus at work or any other such windfall, use it wisely. You will be tempted to spend it all, try to avoid the temptation. Earmark at least 50% of this money for repaying your debts. This will help you repay off your loans faster in the long run.
- Work for a company that offers repayment assistance
Some companies help their new recruits clear off pending student loans. This is a benefit called student loan repayment assistance. If you can get a job with such a company, it will help you clear off your loans fast.
When you finish college, make it your top priority to clear off pending student loans at the earliest. You can use any of the strategies described above to help you be debt-free. This will help you when you want a loan and most importantly will help you start saving money for the future.