If you are struggling to pay off a large amount of debt, you are not alone. Many people face similar challenges when they leave college. There are ways to manage your debt and get back on track financially.
The 2015 class of college graduates have an average student loan debt of $35,000, which is the most in history. Also, the total student loan debt in the U.S. has increased to 1.3 trillion in a few years, and there is no end in sight or any real legislation to stop the problem.
Approximately 43 million people in the United States have student debt, with the majority of them owing less than $25,000. There is also a group of college graduates who have taken out loans for such a large amount of money that they could have purchased a house in the Midwest instead.
Many graduates and students are struggling with six-figure student loan debt. This is a small group of people, just 5.6 percent of all borrowers, but it is a significant problem. If you are one of these people, you probably don’t feel very good knowing that you’re in the minority.
You have to look out for yourself when you owe money. It doesn’t matter if you racked up six figures in debt in graduate school. You’re stuck repaying student loans in bankruptcy either way.
The best way to pay off student loans is to pay more than the minimum each month. This way, you will owe less interest and the balance will disappear more quickly. Typically, those who borrowed more money have a lower interest rate, so it is beneficial to pay off the debt as efficiently as possible.
A student loan payoff calculator can help you determine how quickly you could pay off your loans and how much money in interest you would save. There are also strategies you could use to pay off your student loans even more quickly.
1. Make extra payments the right way
Requesting that your student loan provider apply any overpayments to your outstanding balance, rather than advance your next due date, is an effective way to pay off your loan faster.
Making an extra payment on your student loan, or paying the loan off in one lump sum, can help you save money.
If you had a debt of $10,000 with a 4.5% interest rate and you paid an extra $100 each month, you would be debt-free five years earlier than if you were following a ten-year repayment plan.
If you have a good credit score and a steady job, you may be able to refinance your loans. However, you should weigh the pros and cons of doing so before making a decision.
2. Refinancing your student loans may help you by consolidating your loans and lowering your monthly payments.
If you have multiple student loans, you can replace them with a single private loan through refinancing. It’s ideal to get a loan with a lower interest rate. To speed up repayment, choose a new loan term that’s shorter than the time left on your current loans.
Paying off your debt in a shorter amount of time will increase your monthly payments, but you will save money on interest in the long run.
If you refinance your $50,000 student loan from 8.5% interest to 4.5%, you could pay off your student loan debt nearly two years faster. This would also save you about $13,000 in interest, even if your payments stay the same.
You may be eligible to refinance your loans if you have a credit score of at least 650, a reliable income, and a debt-to-income ratio that is below 50%. If you are looking to take advantage of programs like income-driven repayment or Public Service Loan Forgiveness, you should not refinance your federal student loans.
A number of firms have begun offering student loan refinancing options in the last few years that can significantly reduce the amount of interest you have to pay, potentially saving you thousands of dollars. These firms, like SoFi and LendEdu.com, offer a more consumer-friendly approach to refinancing than traditional banks, and can help you get the best possible rate on your loan.
If you decide to refinance your federal student loans with a private lender, you should be aware that you will lose some protections that are offered by the federal government. These protections include deferment or forbearance of loans, as well as the ability to sign up for income-driven repayment plans or public service loan forgiveness. Some private lenders have started to offer relief to borrowers who lose their jobs, but it is important to read the fine print before agreeing to a loan.
If you want to refinance your student loan without a cosigner, you will need to have good credit. If you have poor or no credit, most private lenders will not consider your application. This includes peer-to-peer lenders like Lending Club or Prosper.
You should look into student loan refinancing if your loans are at a high interest rate, you can’t get a personal loan, and you’re not planning to take advantage of any government programs in the future.
3. Make money while you can.
If you’re not looking to make a lot of money, you might be temped to take any job that comes along. But if you want to pay your loans back, you should look for jobs that are in related fields and pay better.
If you have a degree in psychology and are hoping to find a job as a marriage and family therapist, you might want to consider looking for a job as a human resources specialist instead. Human resources specialists make an annual mean wage of $57,420, while marriage and family therapists make an annual mean wage of $48,040.
You could get a job as a human resources manager with a master’s degree and some experience. A fun fact is that human resources managers earned an annual mean wage of $102,780 nationally in 2014, and usually only the highest-level positions require a master’s degree.
If you doubled your income, you could become debt-free much faster. It doesn’t have to be your dream job, it could just be a temporary job.
4. Pick up a side hustle
If you want to refinance your loans or keep them the same, making more money can help you do that. You might be able to work more hours, get overtime, or take on a new project. Alternatively, you could try to get a promotion at your job.
If you want to make more money and your current job doesn’t offer raises, you could start a side hustle. This is a small business that you typically run from your home. That list includes:
- Bookkeeping
- Massage Therapy
- Home Inspection
- Copywriting
- Editing
- Web Design
- Mystery Shopping
- Blogging
- Affiliate Marketing
There are still many side job options that weren’t mentioned. Things like mowing the grass, laying down mulch, or cleaning houses can be done by almost anyone, and can result in a lot of money. The best part is, any extra money you earn can be put towards your student loans to make them go away faster.
5. Deflate your lifestyle
While graduating college may bring up images of your first house or car, try to hold off on those major purchases until you have paid down your student loans.
Things will work out the way they’re supposed to, so just keep going. Eat Ramen and keep driving that old car. Renew the lease on your apartment until you can’t stand it anymore.
If you continue living cheaply for as long as possible, you’ll have a better chance of getting rid of your debts more quickly.
6. Enroll in autopay
While you can’t refinance your loans to lower your interest rate, you can sign up for autopay to potentially lower your rate.
They offer a discount if you let them automatically deduct payments from your bank account.
Though the savings from this discount may seem small — for example, dropping the interest rate on a $10,000 loan from 4.5% to 4.25% would save you about $144 over the course of a 10-year repayment plan — every little bit can help when it comes to paying off student loans quickly.
Call your servicer to see if you can get a discount for auto-paying your bill.
7. Pay off capitalized interest
If your loans are not subsidized by the federal government, you will accrue interest on them while you are in school, during your grace period, and during periods of deferment or forbearance. This accrued interest will be added to the principal of your loan when repayment begins, which will increase the amount of interest you will pay.
Paying off the interest on your loan monthly will stop it from being capitalized, or added to the principal of the loan. Paying a lump sum of the interest before the grace period ends will mean a smaller balance to pay off overall.
8. Stick to the standard repayment plan
Federal student loans are automatically put on a 10-year repayment timeline, unless you choose differently. If you can’t make big extra payments, the best way to pay off federal loans is to stay on that standard repayment plan.
There are two repayment options for federal student loans: income-driven repayment plans and consolidation. Income-driven repayment plans can extend the payoff timeline to 20 or 25 years, and consolidation can stretch repayment to a maximum of 30 years, depending on your balance.
If you can avoid the extra costs of the premium plan and stick with the standard plan, you will be debt-free sooner.
Frequently asked questions
What is the quickest way to repay student loans?
Some tips for paying off student loans quickly include paying interest while in school, using autopay, making payments biweekly, and making extra payments to principal when possible. Another option to consider is refinancing, but if that is not possible, sticking to the standard repayment plan is a better option than using income-driven plans or forbearance.
Are there loans to pay off student loans?
You can refinance your student loans through a private lender in order to pay them off, often at a lower interest rate.
When do you pay back a student loan?
Starting immediately after you graduate can save you money on interest. Federal and private student loan repayment typically begins six months after you graduate or leave school, but you don’t have to wait to begin payments. Starting immediately after you graduate can save you money on interest.
The bottom line
Although six figures in student loan debt may seem like a lot, it may not be fatal if you are diligent in paying it off. The average new car price in 2015 was $33,543, which means that most people are spending that much on a new car every fifteen years.
In order to pay off your loans, you might have to forgo a new car or make sacrifices in another area of your budget. You might be able to refinance your loan to get better terms and a lower interest rate, which would help you pay off your loan faster.
No matter what, you should keep all of your options open. With six figures in student loan debt, you’ll need all the help you can get.
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