7 Not-So-Scary Student Loan Repayment StrategiesOctober 29, 2020
Paying off student loans can seem scary, especially when you feel like the balance is not going down fast enough. Luckily, these student loan repayment strategies can help you pay down your debt faster and save money in the long run. Here are 7 not-so-scary repayment strategies you can use to slash your student loan debt balance.
Pay More Than the Minimum
Your student loans accrue interest daily, so your payment covers both principal and interest charges. To pay your loan off more quickly, pay more than the minimum to save on interest costs. Save toward this goal by making small lifestyle changes, for example, eating out one less time per week or cutting a subscription service you no longer use.
Even just a few extra dollars per month can add up to big savings over time. When you do pay more than the minimum, just be sure your payment is attributed to the loan’s principal rather than to future payments.
If you have federal loans on an income-driven repayment plan without loan forgiveness, paying more than the minimum can be especially helpful. Your minimum payment may not cover your monthly principal and interest expenses, meaning your loans could grow every month.
Make Bi-Weekly Payments
Bi-weekly payments are a great way to make an extra student loan payment every year. This strategy will also help you save on interest costs.
To try this method, divide your monthly payment in half and make that half-payment every two weeks. If you make a payment every two weeks, you will end up making 26 half-payments (52 weeks divided by 2) which is 13 full monthly payments in one year.
If you’re using this method, make sure your half-payments are made before your due date so you don’t encounter late fees. Also be sure when you make an extra half-payment that it is applied directly to the principal of your loan.
Enroll in Autopay
You have to pay your student loan payment every month either way, so you might as well save yourself some time and money in the process! Enrolling in autopay is the easiest way to accomplish both.
Autopay allows your loan servicer to withdraw the minimum monthly payment directly from your bank account. If you have federal student loans, you will save 0.25% every month while autopay is set up. Some private lenders also offer a monthly discount, so check with your servicer to see if the option is available. This may not seem like significant savings but it can add up to hundreds of dollars over the life of the loan with no extra work on your part.
Enrolling in autopay also helps you to avoid late fees. Your payment will always be on time as long as you have sufficient funds in your bank account.
Refinance to Lower Your Interest Rate
Another student loan repayment strategy that can result in significant savings is refinancing. You can refinance one or multiple student loans, both federal and private.
When you refinance, you obtain one new student loan to pay off your old loans. Your new loan may have a lower interest rate, which could result in thousands of dollars in savings. When you refinance, you can also change the term of your loan.
By shortening your student loan repayment term, you’ll make larger monthly payments and save on interest over the life of the loan. Alternately, you can lengthen your student loan repayment term to reduce your monthly payments. Use ELFI’s Student Loan Refinance Calculator* to see how refinancing could impact your student loan repayment strategy.
Ask Your Employer About Student Loan Assistance
An increasing number of companies are offering student loan repayment assistance as a benefit. Different employers offer different types of loan assistance. Many, however, make direct monthly payments to lenders or pay an annual lump sum to their employees. A majority of employer programs have a cap on the amount of assistance they will provide.
If you are fortunate to work for a company that provides loan assistance, do your best to continue making your monthly payments. You can then consider employer assistance to be “extra” progress on your loan. This student loan repayment strategy enables you to make progress quickly.
Make a Lump Sum Payment with Found Money
Found money is any sum you receive outside of your regular paycheck. Examples include a bonus received at work, gift money you receive during the holidays or cash back from reward credit cards.
By now you know that making extra payments can help you pay your loans off more quickly and save on interest. By making extra payments with found money, you don’t have to find extra money in your budget. Applying money you did not expect to receive towards your debt will help you establish a stronger financial future.
Diversify Your Income Streams
You can diversify your income streams by starting a side hustle. While it will require some extra time and effort, if repaying your loan quickly is a top priority, this student loan repayment strategy is for you.
A side hustle can take on any form, such as driving for a ride share company, selling items online or providing childcare. If you apply all your earnings from your side hustle towards your student loan debt, you will be able to reach your payoff goal faster.
Implementing just one of these strategies will help you save money and pay your loan off more quickly. Student loan debt doesn’t have to be scary when you have a plan and use different repayment strategies to accomplish your goals.
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