May 31, 2019 By Andrew Rombach
How to Pay Off Student Loans Fast
Student loan debt is a major concern for many borrowers. Outstanding student loan debt exceeds $1.5 trillion as of 2018, and the average student graduates with nearly $28,000 in student loan debt according to LendEDU.
That’s a lot of money to owe before starting your career. Many borrowers will find themselves with student loan payments on the 10-year standard repayment plan. However, some people may not be satisfied with paying back student loans for the next 10 years.
After all, student debt can delay recent graduates from buying a home, starting a family, saving for retirement, and more. There are plenty of incentives to rid yourself of student debt sooner rather than later.
Luckily, there are ways to pay off your student loan debt faster. Here are a few different methods that can expedite repayment.
Debt Avalanche Repayment Method
The debt avalanche repayment method is one of the fastest ways to pay off multiple loans without relying on student loan refinancing. It can be done purely through budgeting and with your own income.
With this method, prioritize paying off the student loan with the highest interest rate. While making minimum payments on all loans, devote any additional cash for a larger payment on the high-interest loan. Continue this process until the loan is paid off. After clearing the highest-interest loan, repeat the procedure with the next high-interest loan.
As mentioned, this is the quickest self-sufficient way to pay off your loans. However, it takes discipline and strict budgeting to stick with this method. Furthermore, a strong income is essential since this method banks on having extra cash to make larger payments.
Student Loan Refinancing
When you refinance student loans, you take out a new loan with a new interest rate and repayment term which is used to pay off any previous federal or private loans. The main incentive is to secure a lower interest rate on your student debt while also consolidating monthly payments.
As mentioned, refinancing can secure a lower interest rate which should save money by reducing interest payments. With lower interest payments, you have the option to pay more towards the principal student loan balance for faster repayment.
Student loan refinancing also offers the choice of restructuring your repayment term. By shortening the term, you can set an obligation to pay down your loans faster; just make sure it’s an affordable monthly payment.
In order to successfully refinance, qualified applicants must meet credit and income requirements. If you have great or excellent credit as well as high income you might have a better chance of getting a lower interest rate. Additionally, you will lose any federal benefits and protections after refinancing federal student loans, so keep that in mind. You are also going to want to go with a highly rated student loan refinancing company. College Ave Student Loans’ customers have given the company an average rating of 4.8 / 5 as of May 2019. And, Lendedu’s Editorial Team has historical calculated high ratings for the College Ave product suite.
Debt Snowball Method
The debt snowball method is similar to the debt avalanche except you prioritize loans with the smallest balances.
You make minimum payments on all your loans and devote any extra cash towards your smallest loan balance. Once you’ve paid back the smallest loan, you move on to the loan with the next smallest balance. Repeat this process until all loans are paid off.
There are many psychological benefits to using the debt snowball method. Since you’re paying down the smallest balance first, the momentum can motivate you to keep paying down your loans as soon as possible.
However, there are still drawbacks. This isn’t as fast as the debt avalanche method, and it still requires strict budgeting and high income to pull off. The debt snowball method may also be more expensive than its counterpart. By deprioritizing high-interest debt, interest may capitalize at a greater rate, increasing the cost of your loans.
Making Bi-Weekly Payments
Making bi-weekly payments is a great way to modestly increase the pace of student loan repayment. Instead of making one standard payment a month, you make half-payments every two weeks throughout the year.
At the end of the year, you will have made 13 payments instead of 12 payments through the standard repayment. Making that additional payment will help move repayment along, and it’s not a large financial commitment.
While it won’t break the bank, this method still requires you to both budget accordingly and stick to a more hectic repayment schedule. If it gets confusing, then there’s a chance you could miss a payment and incur a fee.
Managing Your Student Loan Debt
Student loan debt can feel like a huge burden to bear but you can use this frustration to motivate you to pay it off faster. If you’re strategic about it, there are a number of ways you can pay off your loans well before the standard 10-year repayment plan is up.
And paying off your loans early will help you save money on interest and make it easier for you to meet future financial goals.
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