Did you know the average student loan debt for the class of 2016 was more than $37,000? Tuition has grown about 6% annually and, if it continues at this rate, a single year of school would exceed $100,000 in fifteen short years. One thing they didn’t teach you in school was how to pay for it! So, here are five tips for paying off your student loans faster.
1. Get An Early Start:
For many students, whether you’re attending college as an undergrad or going back for a master’s, you’ll be taking out loans to pay for everything from tuition to books. Although you don’t have to start paying off your loans until six months after you’re no longer enrolled, it’s a good idea to start making payments ahead of time, and well before this grace period is over. Many people don’t know that you can start paying off your loans when you’re still in college. It’s easy to push it to the side and believe the loans don’t exist while you’re enjoying the freedom of college, but making any sort of payments will help you in the long run because of increasing interest rates. Here’s a great example from credit.com: “Let’s say you take out a $10,000 unsubsidized federal student loan at 5% annual interest. You’ll pay 0.013699% interest daily. Doesn’t sound like much, but it comes out to about $1.37 each day. So over the course of a month, you’ll accrue roughly $42 in interest.”
2. Pay Off Higher Interest Rate Loans First:
Speaking of interest rates, one pro-tip is to always pay off the student loan with the highest interest rate first. This allows you to save more money because even if your balance is smaller on these loans, you may end up paying more because of the higher interest rate. To save money, it’s a great idea to refinance your student loans. Lending companies like Earnest can help lower your interest rate to something more manageable, often saving you thousands of dollars on the life of your loan.
3. Prioritize Wants vs. Needs:
One simple and effective method of paying off your student loans is simply to spend less. Did you know spending $3 each day on a coffee can easily cost you nearly $1,100 a year? If you want to pay off your student loans faster, it helps to live below your means and make substitutions whenever you can. This also means creating a budget and sticking to it. Find a plan that works for you and make it specific! Write down all your expenses, including necessities, utilities, and any spending money you’ll allow yourself.
A great tip that’s worked for me is to always pay with cash; that way you’ll easily see how much you’re spending each week. Also, don’t forget to have an emergency fund set up in case of any unexpected emergencies along the way! I found the best way to stay motivated towards your goal is by keeping organized with a budget sheet. This way you can visually see where your money is going and make cuts if you find yourself spending too much. (Here are some great spreadsheets to help keep you organized.)
4. Be smart about your raises:
It may be tempting to buy a new TV, a better car, or go on a vacation with your work raises, but you can chip away at your student loans by putting those bonuses to work. Same goes for tax refunds; use that extra money wisely. It may seem boring to use raises and bonuses for paying bills, but you’ll be happy when you have one less monthly payment once your student loans are paid off.
5. Set up automatic payments and pay more than the minimum balance:
A great way to never receive a late fee is to set up automatic payments on all of your loans. This way, the payment is taken directly out of your bank account each month, eliminating stress. Most loan services will provide a 0.25% loan deduction just for setting automatic payments! Increasing your monthly payment when you’re financially able is another great way to pay back your loans quicker than you thought you could.
By Jamie Wharton from Earnest, a low-cost lending company committed to helping others take control of their finances.