College loans are the most significant obstacle that prevents millennials from investing. In 2016, the average student debt was over $37,000. That figure is an increase of a little of 6% in 2015. Financial planners and investment managers offer these tips for paying off student loans fast.
1. Consider The Loans As You Would A Mortgage
If possible, make more substantial payments that will reduce the principal faster. Look at the amortization schedule of the loan. A double payment saves the interest listed for the next month. Add up the interest of every other month for a rough idea of how much you will save. The actual amount will be more because each payment reduces the principal.
Therefore, more of the next payment goes toward the principal that was scheduled. By doing this instead of basing it on minimum payments via income-based repayments, the loan will be paid off in less than half the time. Another strategy that reduces the principal and the time it takes to pay off a loan is sending in half a payment every two weeks.
Some of the interest is reduced by paying two weeks early and you make 26 payments a year instead of 24. A ten-year loan is paid off in less than nine years. A student debt paid off generates other benefits. You have eliminated a debt and can now use that money for investment, buying a home, saving for retirement, or building a college fund for your children.
2. Make A Plan That Creates A Budget Designed To Reduce College Debt
The most effective method of reducing the deficit is to:
- Plan ahead—student loan payments can be like a mortgage
- Make sacrifices
- Delay instant gratification
- Focus on financial goals
Have a repayment plan goal in mind that includes what must be paid each month to reach it. The budget will likely involve cutting back on unnecessary expenses and possibly even making extra money to make extra payments. Any windfalls such as bonuses or a budget item that costs less than budgeted should be applied to the loan. Paying extra always results in less interest and a shorter pay off time.
Take stock of loan debt and formulate a plan. You must explicitly understand your student loan debt to devise a plan to pay it down. Access the loan service’s website to determine the total principal remaining and the interest rate of any loans. List all debt and add to find out how much is owed and to whom.
After landing a job after college, do not blow your money on a condo and a car. Immediately begin repaying student loans. Throw extra income toward debt reduction. A new salary may seem like a windfall and a means of improving your lifestyle.
3. Establish A Fund To Pay Off College Loans
Having money automatically deposited into a savings account is an efficient way to accumulate cash for college loan repayment. Money that you might have to spend on dining out or clothes is set aside to address the debt. The savings account should be separate from the savings or checking account that you might use for other things besides the student loan.
4. Pay Off Smallest Loans First
If you have more than one loan, make any extra payments you can afford on loans with the lowest balance. Paying off a loan early yields a feeling of success and serves as a motivator to continue tackling debt. Loans of an equal amount but different interest rates should be addressed in the order of highest interest rate.
5. Find A Part-Time Job While In College
This strategy generates money to help offset college loans. A student who can earn $1,000 each month, makes $12,000 per year that can replace money that needs to be borrowed.
6. After College, Be Willing To Work 50 To 65 Hours Per Week Instead Of A Traditional 40-Hour Week
Freelancing or working a part-time job in addition to a regular job brings extra income that can be used toward paying off student loans. Think about the money as additional debt funds not to be used for anything else.
7. Avoid Common Traps
Instant gratification is a compelling barrier to paying loans off faster. Many people find maintaining financial discipline to be a problematic hurdle. People who succeed are those who live within their means. Living as you did in college for a few more years will put you on the road to financial freedom sooner.
Having a plan usually, results in paying off debt faster than imagined. Get the basic shelter needed while you are in debt.You need something safe, warm, and clean. Sharing an apartment with someone or living with parents until you are financially stable will make money that is required for rent available to go toward your loans.
8. Avoid Consolidation Of Loans
Consolidating loans can simplify repayment to one monthly payment at one rate of interest. Juggling loan payments is a thing of the past. The choice to combine loans limits repayment strategies, such as paying off high-interest loans first or keeping federal loans in forbearance while aggressively paying private loans.
When you consolidate loans, there is little loan manipulation available. Some public student loans qualify for loan forgiveness. Those who are eligible and are working for a qualifying public service employer may eliminate established eligibility for loan forgiveness by consolidating.
9. Seek Help From A Reputable Adviser If You Have Large Loans Or A Complicated Loan History
Debt-relief agencies approach people who are heavily in debt with a one-size-fits-all approach that consolidates multiple loans and places them in an income-contingent repayment program. The agencies charge for their service. If you need help budgeting, seek advice from a credit union or financial adviser.
They give information based on a strategic borrowing and repayment plan that is geared to your circumstances. You want to get rid of student loan debt as soon as possible. It is unlikely that you will win the lottery. A plan is needed to prevent paying more interest than you have to. Implement some or all of the tips given here to pay back student loans faster and reduce the amount you owe.