Student loans are an unfortunate reality for anyone who wants to pursue higher education in the United States. Some students have to pay hundreds of dollars a month and thousands over their payment period in interest. To ensure you don’t spend more than you have to, try these tips.
How to Payoff Your Student Loans Quickly
If you’re in the process of applying for student loans from the government, you should consider your other options. Get a quote from SoFi for private student loans instead to avoid fees.
1. Make Extra Payments Every Month
Students can pay early or more than their minimum payment without a penalty. However, your student loan servicer may apply the extra amount to next month’s payment. To make sure this doesn’t happen, instruct your servicer to apply the overpayment to your current balance.
You can make additional payments at any time in the month, either on the due date or in the middle of the pay period. Either way, you can save a lot of money in interest using this tip.
2. Refinance if You Have a Steady Job
If you have multiple student loans, you can replace them with a single private loan with a lower interest. However, don’t try to refinance unless you have great credit and a steady job. Not only will you not get approved, but the hard credit check could negatively affect your credit score.
At the same time, you shouldn’t refinance unless there’s a benefit to doing so. Refinancing may cost money, depending on your lender, so the interest cut must be significant to be worth it.
3. Enroll in Autopay to Reduce Your Interest
Although signing up for autopay only reduces your loan’s interest by 0.25%, that can lead to significant savings over the next 10 years. For example, if you have a $40,000 loan with an interest rate of 4.50%, dropping the interest rate to 4.25% will save you $100 right away.
If you’re expected to pay your loan in 20 years, you’ll reduce the loan’s interest by thousands of dollars. To pay down your loan faster, you can put the money you’ll save towards your loan.
4. Pay Off Capitalized Interest
In most cases, non-government loans will accrue interest while you’re at school. If you’re out of your grace period and need a break from payment, deferment and forbearance will increase the amount you owe. This interest capitalizes when repayment begins, causing you to pay more.
To avoid these charges, try to make monthly interest payments while you’re at school. Or, you could budget and make a lump sum payment before your postponement or grace period ends.
5. Make Bi-Weekly Loan Payments
Seeing $200 leave your account all at once can shock your psyche, but if you make two $100 payments bi-weekly, your brain won’t see the cost as too large. That’s because we read from left to right, so the first digit resonates with us the most. It’s why $4.99 looks smaller than $5.00.
Paying your bills bi-weekly also sets up better financial habits. It helps you create a payment schedule that ensures you don’t miss any of your bills, which is essential for keeping debt low.
6. Stick to the Standard Repayment Plan
Can sticking to the regular 10-year payment timeline actually help you pay your student loans faster? Yes, because it reduces fees you incur from late payments. If you can’t afford to make extra payments, refinance your loan, or pay off your capitalized interest, just stick with the plan.
Eventually, you’ll be able to get a good job that gives you the privilege. But you don’t want to hurt your credit or your potential to take out more loans or get a mortgage in the meantime.
