Borrowing a loan to pay for your tuition has now become a common part of attending college. After graduating, you’ll find a mountain of loans you borrowed. The thought of repaying the loan at a specific interval of time can be stressful.
Relax, with the right strategies and the steady job in hand, you could clear the debts sooner than you think. Here is an article to guide you with six simple steps to pay off loans quicker.
Step 1 – Pay More Than The Minimum Amount
One of the simplest methods to pay off student loans is to make more than the minimum payment each month. While you make regular monthly payments, you’re nowhere close to clearing the debts you borrowed, and if you look at the added monthly interest, you may just be paying off the interest and never touching the principal.
Making extra payments lowers the overall amount you pay and the amount of time it takes to pay off the loan.
When you make the extra payment, ensure your loan servicer keeps the due dates for next month’s amount the same. Be sure the overpayment made covers the current balance and not the next month’s interest installment.
Step 2 – Choose The Standard Repayment Plan
A Standard Repayment Plan is another payment plan you could choose to repay the federal student loans faster by making extra payments for a fixed period. The repayment period could be ten years or a federal loan unless you choose a different period.
The Income-Driven Repayment plan is another option for those who cannot stick to the Standard Repayment Plan. The income-driven program may extend the life of the loan to 20 to 25 years.
Another consideration is to consolidate your student loans. Keep in mind; consolidation typically adds more time to the life of your loan.
Step 3 – Aim For A Loan Forgiveness Program
A Loan Forgiveness Program is a dream come true for many to become debt-free. You can take advantage of this program if you work for a government sector or a non-profit organization.
When you work in public service in a job such as a teacher, nurse, first responder, or military, you may be eligible for a loan forgiveness program.
With these programs, the student’s federal loans are forgiven after working for a certain period of time. Unlike private student loans, which remain with you until they are paid off – or you die. Whichever comes first.
Step 4 – Consolidating Or Refinancing Student Loans
Consolidating your student loans means you combine all of your loans into one with a, hopefully, lower interest rate. Consolidation can help you manage your loans better by paying them all at once with one payment.
If you’re able to get a considerably lower interest rate, it may make sense to refinance to a lower rate to help you pay off your loan faster.
Refinancing Student loans is combining all the loans at a private servicer and getting a better interest rate that can help you pay off the debt faster with overpayments. If you have a parent plus loan, refinancing is a great option as well.
This can be possible if you have a good credit score from previously making your payments on time. However, we advise you to settle on a fixed interest rate and not a variable rate that can vary every month.
Step 5 – Try Making High Payments
Saving money and using it to repay your loans is difficult but the best method. Instead of spending on clothes or a trip, putting everything towards your loan can help you save thousands of dollars over the life of your loan, as well as the time it takes to pay it off.
You could also use the debt snowball method, where you focus on paying off one debt at a time, starting with the lowest balance.
Imagine you are current on payments with a $10,000 student loan with an interest rate of 5% for 15 years. The average payment on this type of student loan would be around $106. By the time you pay off your loan, you would have paid approximately $2,730 in interest.
If you could increase the monthly payment to $500 a month, you would save yourself $2,267 in interest and cut your loan down to only 1.74 years!
Step 6 – Make Use Of The Interest Rate Reduction
Certain private loan servicers offer an interest rate reduction of about 0.25% to cut down the total cost while repaying the loan. This option is provided when you sign up for an automatic loan payment plan.
You could take advantage of this option so you don’t have to worry about the due dates and can also make lump-sum payments to clear loans faster.
In addition to these ways to pay off student loans sooner, you can make biweekly payments on your monthly amounts. Paying twice during the month can help lower the total amount of interest you pay.
Also, rather than having one large lump sum at the end of the month, breaking up payments into smaller chunks can make repayments more manageable.
By using the biweekly method, you will make 26 half-payments instead of 13 full payments.
You could also create a payment plan by prioritizing the loan payments to be made first during the month. By proper planning and adopting the right way to repay your student loans, you can get out of debt sooner and stop giving your hard-earned money away.