The cost of ignorance is much higher than education. However, in a bid to secure a brighter future through education, many people may have unwittingly dug themselves into a debt trap. One of the reasons why Millennials and Gen Zs are postponing life milestones is due to the heavy burden that comes from student loan debt.
About 69% of college students took out student loans to fund their educational pursuit, bringing the average student loan debt owed by U.S. students to $29,900. Student loan makes up. As of Q1 2021, student loan debt in the United States hit $1.74trn with the average U.S. household being indebted to the tune of $57,520
As such, student loans constitute a big burden which could truncate our plans for financial independence. With a repayment period spanning for as much as 30 years, most people would be bearing a burden till their retirement age, if not handled properly. This article aims to show how you can pay off your student loan debts faster and secure a more financially stable future. Below are some tips worth trying.
1. Consider refinancing your student loan debt
One way to pay off your student loan debt faster is by refinancing. This refers to a process that allows debtors to take out a new loan to pay off outstanding ones. This strategy is effective as income increases because it allows the debtor to reduce the burden that comes with loan repayment on his finances.
If you have a good credit score, you can negotiate for a lower interest rate, which reduces the total amount you would have paid on the loan. You can also refinance for a shorter repayment window, which means you would be able to rid yourself of the financial burden earlier than previously, thus achieving financial independence and the opportunity to add to your net worth. You can use a student loan refinancing calculator to calculate the total amount you would pay if you decide to refinance your student loan debt.
2. Increase payments on your student loan
Many people fail to take advantage of the absence of an early repayment penalty for student loans. Unlike other loans such as 30-year mortgages or auto loans, increasing your monthly payment does not attract a penalty.
Increasing your monthly repayments helps you reduce that principal which means you pay less interest on your loan. If this is done consistently, the cumulative effect is that you would be able to shave off some years from your loan repayment period, thereby making you pay your student loan debt faster.
You don’t have to start with a lump sum. An extra $20 or $50 payment done consistently over time would have a cumulative effect on reducing the loan. extra cash from bonuses, gifts, or tax refunds can be put to use in paying off your student loan debt.
Just make sure that your student loan is applying the extra payment to your principal. To have a better grasp of how extra payments can have on your total student loan debt, you can use a student loan payoff calculator.
3. Be a public servant
If you offer yourself for service to the public, then you can have your student debt loan reduced or written off. The Public Service Loan Forgiveness program established in 2007 allows for the cancellation of all federal student loans for people in public service. Choosing a career as a doctor, lawyer, nurse, firefighter, government employee, or community helper can offer some reprieve from your student loan debt in exchange for working for the public or community.
4. Increase your income stream
One sure way of paying your student loan faster is increasing your income stream. The more income streams you can create, the more cash you would have available to pay off your student loan debt. You can consider getting a side gig to help complement existing income. You can start a business, but do your feasibility studies and ensure that you would not be taken on more debt or financial responsibilities than you can handle. Freelancing and the gig economy offer a lot of prospects to earn extra cash.
5. Create a debt avalanche
A debt avalanche is a debt financing strategy that prioritizes repayment by interest rates. Debts that have the highest interest rates are paid off first. This saves time and reduces the overall amount paid because you target the loans that accrue the most interest first. Paying off a loan that has an 8% interest rate, not only saves an extra 8% but gives you more capital to increase repayment on other student loans. You can rank your student loan debt by interest rate then start by paying with the one that tops the list.
6. Make more frequent payments
This is similar to increasing your monthly repayments, only that it is done in smaller amounts, but more frequently. This is effective especially when having the bulk cash at the end of the month. You can increase the number of times you pay your student loan in a month. You can schedule your repayment fortnightly or weekly if you can afford it. One benefit of this strategy is that it helps you reduce daily interest which is accrued on your student loan.
Student loans are a huge burden and have prevented many people from realizing their life aspirations. The grueling task of repaying student loans has kept many in a hamster wheel which they can’t seem to stop. While it is not advisable to put off quality education due to the financial implications, you can use the above strategies to pay off your student loan debts faster. The key is to be committed to any strategy you chose and having a view of the bigger picture which is financial freedom.
Photo by Andre Hunter on Unsplash
March 30, 2023