Most people in your graduating class think about finding the best way to pay back student loans.
Graduating with a mountain of debt is not only stressful, but it can be the maker of future financial challenges.
Making sure you’re prepared to begin paying your loan back as soon and quickly as possible can make a world of difference.
10 Ways to Pay Off Student Loans
Having a financial plan in place is undoubtedly the best way to ensure you pay your student loans down quickly.
By taking advantage of the following tips, you’ll be in a better financial position than ever before.
You’ll have financial freedom, the ability to save more of your income, and be able to start reaping the benefits of your degree.
1. Build a Budget
First and foremost, you need to establish a budget.
Budgeting is important to help you know how much of your loan can get paid down in a specific length of time.
Also, it can give you a clear idea of how much of your finances you’ll have available for other essentials.
How to Create a Student Loan Budget
When it comes to creating a budget for student loans, there are a few key steps you’ll need to follow.
Step 1: Find a Budgeting App
Gone are the days where people create written budgets, especially with the prevalence of technology.
Our top recommendation is to find a budgeting app (preferably for free) that handles most of the work for you.
These apps showcase your finances in an attractive and easy-to-read manner.
All you will have to do is input your financial metrics and allow the budgeting app to adjust your spending allowance for you.
Plus, you can also customize your budgets to account for certain expenses or avoid others.
They are one of the simplest ways to keep track of your finances without any headaches.
Step 2: Look at Your Loan Terms
Once you’ve found the ideal budgeting app, the next step is to take a look at the terms of your loan agreement.
Your terms will outline the amount of money you have to pay back monthly.
It will also contain the total number of months you have to pay down the full amount of your loan.
With this information, you can plug your financial information into your app more correctly.
It can then ensure that your income and spending are adjusted so that you can live more comfortably.
You might also want to look at your terms to determine any penalties for paying off your loan early.
Some financial institutions will slap on additional fees, such as the remaining interest owed, if you pay loans down early.
This reason is why it is essential to always read the fine print to ensure you have the freedom to manage your loan as needed.
Step 3: Stick to the Budget
The most obvious step of creating a budget is to make sure that you stick to it.
It can be tempting to spend more on certain expenses than you have allocated for that month, but it has a ripple effect.
If you spend over your budget in January, for example, you will be making up for it in February, March, April, and so on.
When creating your budget, ensure that you are accounting for enough money in all of your everyday expenses.
For example, you will want to make sure you have enough for groceries, your rent payments are correct, and more.
2. Categorize Your Debt
A fantastic way to get a clear idea of where your income needs to go towards debt is to categorize it.
This method is often called the snowball method, as you will be paying everything off starting with small sums.
Eventually, you will work your way towards your most considerable debt, like a snowball rolling down a hill.
One of the largest advantages of the snowball method is that it helps keep you motivated.
For some, putting all of their money on their most significant amount owing seems like nothing is truly changing.
You might still have four outstanding balances with a large debt with one lender that barely moves.
A better alternative is to start with the smallest amounts to get paid off quickly so that you pick up steam.
You will feel far more motivated to take care of more debt, allowing you to throw more extra money onto what you owe.
Once your smallest debt is handled, move onto the second, third, and fourth largest amounts.
3. Expect Financial Sacrifices
If there’s one thing every student in debt can agree on, it’s that paying it back isn’t ever easy.
Unless you are fortunate enough to have the money already put aside, financial sacrifices are expected when paying student loans.
Typically, you’ll be able to see what you are spending too much on when you have established a working budget.
When you go through all of your monthly expenses, you will be able to see the things you are spending too much on.
For example, are you spending too much on groceries and takeout food on nights when you don’t feel like cooking?
By having a clear idea of your luxury expenses, you can easily cut back.
It’s a great idea to take a second look at what you are spending to see what’s necessary and not.
Do you really need three movie/TV show subscriptions plus $150 budgeted for shopping each month?
Or, would you rather have one subscription with more than enough content and pay your student loans down faster?
4. Prepare Early
There’s no doubt that student loans can cut back a significant chunk of stress when in school.
Many students choose not to work and focus on their studies but are stuck with a large amount owing upon graduation.
Instead of facing a mountain of money that you have to pay back, it’s always best to start preparing early.
A fantastic recommendation is to pick up a part-time job or side gig while in school to prepare for your loan repayments.
Considering the majority of your time will be taken up by work and school, you can save a significant chunk of money.
If you earn $25,000 each year with a part-time job, you would have $100,000 to put into debt after your four-year degree.
Even if the amount you earn is significantly less than that amount due to expenses, it is still better than nothing.
It’s far too often that students find a job in their field and have to use most of their income to pay off student debt.
5. Avoid Minimum Payments
The idea of making minimum payments towards your debt can be comfortable, especially while studying.
However, this won’t help much with the stress of a massive debt getting paid in small amounts.
Instead, it’s a far better alternative to make payments above the minimum detailed on your account.
When you make minimum payments monthly, you will barely be breaking the interest applied to your payments.
By putting larger sums down, you will not only tackle the principal balance more effectively but faster as well.
If you decide to do this, it’s best to take a look at your loan agreement as well.
You will want to make sure that the total amount is applied that month if you make larger-than-normal payments.
Some financial institutions will take anything above minimum payments and put it towards the next month.
Even though this might seem convenient, it lessens the impact of making lump payments each month.
6. Make Extra Payments
On top of ensuring that you are paying more than the minimum every month, why not consider extra payments as well?
When sticking to your budget, you might find you have some extra money leftover at the end of the month.
Instead of letting it sit in your checking account to spend later, applying it to your loan is a better alternative.
By making frequent extra payments, your student loan will shrink considerably in far less time.
What’s more, it can also help improve your reputation and financial standing with your lender.
Regular payments and doubled payments show you’re more than responsible for the loan you’ve taken out.
If you find that you have to negotiate with your lender in the future, such as for lower interest rates, this can help.
They have concrete evidence that you are taking on the responsibility of your loan and managing your money effectively.
7. Consider Refinancing
Refinancing your student loans can help you pay them down much faster without needing extra income.
When you refinance, there are a couple of advantages for you to consider.
First, you could have the option to consolidate multiple loans from multiple lenders into one.
The second advantage is you could access lower interest rates paired with extra benefits from a new lender.
It’s also possible to opt for a shorter term, meaning you’ll have the ability to pay your loan off faster.
However, you can expect your monthly payments to be more than they were initially with a shorter term.
When refinancing, you can either stick with the same lender (if you’re satisfied) or choose a different one to work with.
If you choose a new lender, they pay off your existing loan(s) and consolidate them into a single loan.
You’ll then be responsible for paying one lender back rather than multiple payments with varying interest rates.
It’s important to note that although refinancing is beneficial, it’s not for everyone.
Private lenders have different requirements, but you will likely need a credit score in the high 600s.
Also, with most institutions, your debt-to-income ratio needs to be healthily below 50% to even be considered.
8. Inquire About Discounts
The idea of getting discounts on your student loans might seem too good to be true.
However, many lenders give their clients the option to save with a couple of savings opportunities.
One of the most popular is to save on your interest rate by switching to automatic payments.
Autopay is a win-win situation for both you and the bank.
With this, your bank can guarantee they are getting paid every month.
As a borrower, you can ensure your bills are paid monthly without manually managing the payments.
With this arrangement, you could be eligible to save anywhere from 0.25% to 0.50% on your interest rates.
Another popular option for savings on student loans is if you have multiple products with a bank.
For example, you could get discounts if you already have a checking and savings account with a student loan.
9. Switch to Bi-Weekly Payments
Bi-weekly payments are a fantastic way to get more money on your student debt over the year.
Instead of one large payment at the end of the month, you’ll have two smaller amounts.
Although you’ll have to make two payments, both payments are smaller, which is far more convenient.
The largest benefit of bi-weekly payments is that you would have made an extra payment by the end of the year.
Once you get into the habit of bi-weekly payments, you won’t even miss the money, and you’ll have more paid off.
10. Get an Extra Job
We saved this tip for last, especially since it is not something that everyone can fit into their daily schedule.
However, if you have the time, picking up a second job can significantly help with the burden of student debt.
Whether it be a traditional part-time job or a quick gig, like delivering groceries, the extra money is essential.
Then, all of the income from your second job can go towards your student debt.
You can then put the other income from your regular day job into savings and your living expenses.
There’s no doubt it will be far more work, but you’ll also have the financial freedom you’ve been searching for.
Best Way to Pay Back Student Loans
If you’re trying to figure out the best way to pay back student loans, many options are available.
From making bi-weekly payments to refinancing, every student can find ways to put more money into their debt.
By sticking to a budget and a payment schedule, you’ll be out of debt faster than you imagined.