How to Pay Off Student Loans FasterFebruary 5, 2018
When you took out student loans for your degree, you likely envisioned a bright future full of exotic career options. And why wouldn’t you? You’d never go through all that trouble and years of hard work if you didn’t have big plans for your career. But now that you’ve started making monthly payments on those not-so-shiny student loans, you and yourself in a deserted breakroom screaming “Wiiiilson!” at the top of your lungs to an endless sea of ‘tick-tocks’ coming from the clock on the wall.
But before you do anything drastic, take a deep breath and remember – you’re not nearly as alone as you might feel. In fact, millions of recent grads are in the exact same situation, and each of you has the exact same question on your mind. “How can I pay off my student loans faster?”
If the thought alone of being debt-free is not enough to motivate you to pay off your student loans faster, consider what you could do with all that freed up money. You could finally afford that trip to Europe. How about a nicer car, you know, one that you actually enjoy driving? Whatever it is, life without debt opens up a world of financial possibilities, and there are a couple of (smart) ways to go about speeding up the process.
How Much Do You Really Owe?
It may seem obvious, but if you’re trying to pay off your student loans faster, the first thing you want to do is to take stock of your debt – not just your student loan debt, but any other loans you may have taken out during school (credit card, auto loans, mortgage, etc.). You need to have a clear understanding of how much you owe various lenders, and more importantly, the interest rates associated with each loan.
While it’s almost always in your best interest to pay off your student loans faster, there is one exception that may surprise you. For example, credit card lenders often charge much higher interest rates than student loan lenders. If you’re in a situation where you hold a large amount of credit card debt, it might be more beneficial to utilize the lower interest rates on your student loan debt. Instead, work towards paying off that credit card debt for the sole purpose of minimizing the amount of your hard-earned cash that is going towards interest.
Pay Off Your Student Loan Debt Faster by Refinancing
That being said, have you looked into refinancing your student loans? A whopping 62% of borrowers have yet to refinance their student loans, which is mind-boggling considering you can consolidate and reduce your monthly payments. ELFI customers on average have reported a savings of $309* a month and should see an average of $20,936 in total savings after refinancing their student loans with ELFI*! Student loan interest rates are currently dipping into historic lows. The sooner you refinance and pay off your student loans, the more money you can save.
Make More Than the Minimum Payment
As you look into refinancing your student loan debt for lower interest rates, find a monthly payment that works with your budget. As you fine-tune your budget planning method, pay more than your minimum monthly payments whenever possible. It’s imperative that you instruct your lender to apply any additional payments directly to your principal, as many lenders have found clever ways to maximize their profits by putting those extra funds towards your future interest.
Pay Off Student Loan Debt Faster by Applying Your Raises
As tempting as it may be to treat yourself with any raises, bonuses, or tax returns you are rewarded over the next several years, visualize a life entirely free of student loan debt! Any time you skip out on an opportunity to take a big chunk out of your principal, you’re essentially lengthening your debt sentence. Even if you don’t apply the entirety of your bonus income directly to your student loan debt, at least think twice before investing in a new big screen TV. Oh, by the way, that’s not an investment.
Avoid Income-Driven Repayment Programs
Most income-driven repayment programs offer lower monthly payments, which is great! Except they come at the expense of lengthening your repayment term. If you’re trying to pay off your student loans faster, it’s best to avoid income-driven repayment programs and explore other options like refinancing your student loans (which can also reduce your monthly payments without unnecessarily dragging on your repayment term for several more years).
There are plenty of articles out there about paying off your student loans, advising you to take a federal job that offers a loan forgiveness program. While it’s not the worst idea, you just spent 4+ years working towards a degree. Do you really want to spend another 5 years in a job you’re not thrilled about just so you can eliminate your student loan debt? Would it not be more fulfilling to get a job that can most fully prepare you for a long- term, purposeful career without sacrificing your current sanity?
Refinancing – The Smartest Way to Pay Off Your Student Loans Faster
The fact is – you’re no stranger to making sacrifices for your dreams. And while it may seem like you’re barely getting traction, you’re well on your way to the future you envisioned years ago. Obviously, there’s not a quick ’n’ easy way about it, but there IS a smarter way – by making sure you know your options. Regardless of how you choose to go about it, the smartest way to pay off your student loans faster is, without a doubt, to refinance for a lower rate. Student loan refinancing allows you to take out a new loan with a private lender, typically with a lower interest rate and a new loan term.
*Average savings calculations are based on information provided by SouthEast Bank/ Education Loan Finance customers who refinanced their student loans between 8/16/2016 and 10/25/2018. While these amounts represent reported average amounts saved, actual amounts saved will vary depending upon a number of factors.