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Actionable tips on how to pay off student loans fast.
Have you ever found yourself dreaming that your student loan is paid off and you are completely debt-free?
Well, you are definitely not alone. According to Forbes, 44.7 million Americans are dealing with debt.
Today, I will share with you tips on how to pay off your student loan faster so that you will achieve your debt-free goal.
So let’s dive in.
Important Steps On How To Pay Off Your Student Loans Faster
Know Your Why
To start your journey and before you get into the financial details, you have to get into the why you want to do it.
It can be because you hate debt and knowing you owe someone keeps you awake at night. Or, you want the debt to be taken care of so that you can buy a house or add another financial responsibility.
No matter what your “why” is, having that in mind will help keep you going as you start making hard decisions and sacrifices.
In addition to that, having a clear reason will make it easier for you to stick to your goal.
Learn How To Create A Realistic Budget
If you don’t have a budget yet, this is the time to start one. Knowing how much you’re earning every month and how much you’re spending is an important step in your student pay off plan.
Doing a budget will determine how much money you’re going to be working with.
Know What You Earn
Knowing how much you make will determine how much “extra” you can put into your loans and how quickly you will be able to pay it off.
If you are salaried then it will be easy to figure out how much you earn every month but if you are self-employed, has side hustles or has a seasonal job, it will be a little tricky since your income will vary a lot.
So the first thing that you will do is to gather your pay stub or direct deposit information and write your net pay on a spreadsheet or a notebook, whatever you want.
Your net pay is the amount you get after all the deductions like FICA, social security, health insurance, and other deductions.
You can use this fillable budget printable to make it easier for you.
If your income is variable, write down the last three months’ worth of paycheck and get the average or if your income varies for twelve months, get the 12 months’ average.
For example, if month one, you made $2400, month two, you made $3000 and month three, you made $5000.
$2500 + $3000 + $5000 = $10400
$10500 / 3 months = $3500
Your income can be your salary but it can also include other things like bonuses, tax refunds, child support, part-time jobs, overtime, and more. So, don’t forget to include those in your total income.
Know What You Owe
Not knowing the details of your student loan is the perfect ingredient for failure. You cannot create a plan to repay your loans quickly unless you know how much you owe.
Things You Need To Know About Your Student Loan
Interest Rate: percent of principal charged by the lender for the use of its money
Minimum Payment: the amount you’re required to pay every month to stay current with your account
Terms: the number of years you have to pay off your student loans
You can get all the details of your student loans from the Department of Education if you have federal student loans.
Cut Your Expenses
Now that you know how much you’re making and how much you owe, it’s time to cut down your expenses so that you will be able to put more money into your student loan payment.
For most people, this is where they give up because no one likes to change their comfortable lifestyle. But not you. You wanted to be debt-free more than you wanted a new Chanel purse.
Review your expenses closely and eliminate expenses that you can live without and work on reducing essential bills.
For example, rent or mortgage is one of the biggest expenses in everyone’s budget. You can reduce this amount if you can find a roommate or you can refinance your current mortgage to have a lower monthly payment.
Similarly, if you have a gym membership, you can cancel it and start working out from home. You can even run or bike outside for a workout.
Lower Your Rates
Of course, not all expenses can be eliminated. Bills like your utilities, cellphone bills, internet, cable or car insurance are some of the things you need in your life. And you can find lower rates for these expenses if you ask.
Therefore, your action plan is to gather all your essential bills and call each company and ask for a better price.
The good news is that it doesn’t have to be you, this company can negotiate your bills for you.
But don’t just take my word for it, try them out. You won’t pay a cent if they were not able to get you a better price. What have you got to lose?
Know Your Credit Score
Knowing your credit score is vital if you want to refinance your student loan. However, this is not only important for your student, but you’ll also need a good credit score when you apply for a job, a new credit card or buy/rent a new house.
A good credit score is determined by:
- Longer credit history
- Fewer new accounts
- On-time bill payments
- Total debt that is <30% of the credit limit
- A good variety of accounts
You can view your credit report and credit score for FREE from these companies;
Annualcreditreport.com – you can view your credit report for free
Credit Karma – you can view your Vantage score but not your FICO score
Banks like Chase, Discover, Barclay, and Capital One – let you view your score if you are a member
Now that you know your score, make an action plan to improve it. You are gonna want to check out this post on how to rebuild your credit score.
Know Your Payment Plan
Besides knowing the interest rate, minimum payment, and term of your student loan, it is also important to know your payment plan.
Your payment plan will determine how fast you’ll pay off your loans.
Standard Plan – default standard plan with a 10-year term and the least amount of interest.
Income-Based – you’ll pay 15% of your discretionary income and can be forgiven after 25 years.
Income-Contingent – the amount you pay for 25 years will depend on your family size, loan amount and salary, usually 20% of your discretionary income.
Extended – your payment can be fixed or graduated over the life of the loan.
Graduated – your payment will increase every two years for 10 years.
Pay As You Earn and Revised Pay As You Earn – your monthly payment is capped at 10% of your discretionary income. These plans are best for those experiencing financial hardship and cannot afford the payment.
Income-Sensitive – your monthly payment will be 4-25% of your gross monthly income and it must be renewed every year for 10 years.
Public Service Loan Forgiveness – if you work for a nonprofit company, they can forgive your loans after 10 years of payments.
Refinance Your Student Loan
Refinancing is one of the simplest ways to save money on your student loans. A lot of companies are offering student loan refinancing and you can get a lower rate depending on your credit score.
Every little bit of interest that you can save is money in your pocket. Check out how much you could save here.
So your action plan is to list and contact a few refinance companies and see what rates and terms they can offer you.
Set Your Debt Payoff Goals
When you are starting your student-loan-payoff journey, you need to set goals. Goals keep you on track and motivate you to keep going.
However, your goals should not just be simple, they need to be SMART goals.
S – pecific
M – easurable
A – chievable
R – ealistic
T – imely
Therefore, instead of saying,
“I want to be pay off my student loan in 5 years”
You should say,
“I want to pay off $40,000 of student loan in 5 years by adding an extra $300 in my monthly payment. I will do this by cutting my expenses and picking up side hustles.”
Check out this post for more debt payoff tips.
Snowball Your Student Loan
The snowball method is applicable when you have more than one loan and it’s the process of paying off the smallest loan first and work towards the biggest loan.
Now, it may sound ridiculous but if you think about it this way, as you pay off the smallest balance first, you’ll feel your progress as you get those quick wins that will motivate you to keep working on paying off your student loans.
The snowball effect will help you achieve your goal faster. Learn more about paying off debt with the snowball method here.
Pay More Than The Minimum
You probably already know that paying just the minimum will get you nowhere. You’ll end up paying off your debt longer and paying more in interest.
So as you cut down your expenses and make more money, put extra into your monthly debt payment.
Here’s the most important part, you have to make sure your extra payment will be applied to your principal. You can do this by contacting your loan servicer when you make your extra payment.
Throw all “windfalls” To The Student Loan Payment
Have you ever found yourself with sudden extra money in your hands? I bet you did. They came in the form of raises, bonuses, tax refunds or probably inheritance.
Windfalls, when you use it towards your student loans, will help you significantly lower your balance and decrease the interest you’re paying.
Never Rely on Student Loan Forgiveness
Student loan forgiveness may sound like the best plan to tackle your student loan, but don’t let it deceive you.
Apart from the multiples requirements to meet to be eligible, it is not even guaranteed. You’re better off getting a well-paying job and start paying off your student loans.
Earn More Money
One of the best strategies to pay off your student loans is to make more money. There is no limit on how much you can earn. The more you make, the sooner you pay off your student loan.
But here’s the thing, it will only work if you use the extra money to pay off the loan. You earn more to pay more, not to spend more.
Check out these side hustles that you can do to earn more money.
You can do this by using a goal planner, where you can write your goals, thoughts, reasons why you want to achieve your goals and so on. This way will keep you focused and reminded of why you are working on this goal.
Another way to stay motivated is to use visual progress trackers. These trackers will show you how far away are you from achieving your goal and how much you have accomplished.
You do not have to wait until you achieve your ultimate goal of paying off your student loan to celebrate. Celebrate your quick wins, every little one. After all, you work hard for it.
There you have it! That’s how you pay off your student loans fast.
Final Thoughts on How To Pay Off Student Loans Fast
Paying off your student loan is a lengthy process and there will be a lot of impediments along the way.
However, as long as you do the tips and strategies mentioned above, you will be in a good place and I have no doubt that you will succeed.
Related Debt Payoff Articles:
- How To Pay Off $15000 Debt In Less Than A Year
- How To Pay Off $25000 In Credit Card Debt
- How To Pay Off $10000 Debt
- Is It Possible To Do Couponing To Be Debt-Free
- 11 Things You Can Do To Erase Debt