CEE Standard: Using Credit
If your students are getting ready to go to college, now is the time to talk to them about student loans. Using this article, help them come up with a plan to pay off their debt purposefully and quickly.
You’ve graduated college and your grace period is up. It’s time to pay back those pesky student loans. Student loan debt has become a way of life for many of us.
After seeing your total balance, you may be overcome with shock — maybe even a little panic. “How will I ever pay this back?” you think.
I’ve been there. Just a few years ago, that was me. I could hardly believe how much debt I was in and how much interest was tacked on to my loans. I felt paralyzed by my debt and didn’t know how to move forward.
At the time, I had $68,000 in student loans with no full-time job in sight. While my situation was less than ideal, I knew that I wanted my loans gone yesterday.
I knew that getting out of debt was really important to me because I wanted the freedom to travel and experience everything life has to offer. Currently, high student debt levels are leading to delayed homeownership according to the Federal Reserve. Student loan debt is also related to delayed retirement according to research conducted by American Student Assistance. I didn’t want that to be me.
Now after several years of hustling, last year I finally paid off my debt. It felt surreal. It’s not an easy process, nor is there a magic pill that can help it all go away. But there are ways you can speed things up and become debt-free. Here are eight steps you can take to pay off debt quickly.
1. Pay More Than the Minimum
If you want to get out of debt fast, it’s imperative that you pay more than the minimum. Minimum payments are just that — the minimum. Look at your income and expenses and see how much you can afford to put toward debt each month. Even an extra $50 can help. The key is to pay more than the minimum, possibly doubling your payments if you can.
2. Sign Up for Auto Pay
Most student loan servicers offer a 0.25 percent reduction in interest for borrowers who sign up for automatic payments. Accruing interest on your loans quickly tacks more money onto your balance, making it tough to pay off. Any reduction in interest can save you money in the long run, so your payments can go toward the principal balance and not just interest.
3. Make Biweekly Payments
Instead of making monthly payments on your debt, make biweekly payments. You don’t even have to pay more — just divide your monthly payment in half and make biweekly payments. You will pay less in interest over time and effortlessly make an extra payment. How? When you make monthly payments, you’ll make 12 total payments. By making biweekly payments, you’ll make 26 half-payments, which equates to 13 total payments.
4. Throw All Your Extra Cash at Debt
If you really want to get out of debt as soon as possible, commit all extra funds to debt. Did you get a hefty tax refund? Birthday money? Any time you get “extra” money — such as a tax refund, birthday money, or an inheritance — use it to reduce your debt. The “extra” money won’t affect your budget, so before you have too much time to think about how you’ll spend it, apply it toward your debt instead. If that is too much of a sacrifice, promise yourself ahead of time what portion of “extra” money will go towards debt.
5. Consider Refinancing
Depending on the type of student loans you have, as well as your interest rate, refinancing your loans could save you thousands of dollars. There are many refinancing companies out there that can refinance both federal and private loans, offering you a better interest rate. Through refinancing, you pay less in interest, so you can attack the rest of the principal.
Borrowers looking to refinance will need to have a good credit score, which helps lenders assess your creditworthiness. To improve your credit score, it’s important to make on-time payments for all your bills. In addition, keep your credit use to a minimum, as the closer you get to your credit limit, the more likely you are to be considered a risk to lenders.
It’s important to note that all refinancing companies are different and will offer different interest rates based on a variety of factors. In addition, you will be giving up federal protections such as forgiveness or income-based repayment through refinancing. Refinancing can save you a lot of money, but it’s important to do your research to see if it’s right for you.
6. Go on a Spending Diet
When you are committed to paying off debt, all of your expenses need to be re-evaluated. Ask yourself:
- Do I need this?
- Can I find it cheaper elsewhere?
- Does this offer value in my life?
I’m a firm believer that you have to have some fun even while paying off debt, so consider going on a Spending Diet, which allows $100 per month for spending on wants as opposed to needs. By capping your non-essential spending at $100, you become more aware of your purchases and free up more money to pay off debt.
7. Make More Money
Cutting back is a key component of paying off debt. But what happens when you can’t cut back anymore?
Make more money. This option can often be more fun and empowering than the others. To make more money, look on sites like Craigslist, TaskRabbit, Uber, and more to put your skills to use. Seek other opportunities where you can make extra income that can go straight into your repayment plan.
8. Start Today
I knew that student loan debt was holding me back from my goals, so I took action. Personally, I hate debt, so I’m singularly focused on getting rid of it. I think that it’s possible for borrowers to pursue other goals like homeownership or starting a family while they’re still in debt.
However, debt can limit both your dreams and your opportunities, so work to eliminate your student loans in 10 years or less. The good news is that using these tips can help you pay off your loans and start saving for your financial future.
It’s getting in the right mindset and starting to make little changes every day that will have a big impact on your debt so that you can live the life of your dreams — debt-free.
- Does the thought of going into debt scare you?
- Do you have to borrow money for school? If so, how much are you going to take out in student loans?
- What does it mean to “pay more than the minimum” and how will that help you get out of debt faster?
- What is refinancing?
- Have you ever tried going on a spending diet? Give it a try and see how you do!
