Resolutions: How to Torch Your Student Loan Debt by 2025January 9, 2020
If you’re like most college graduates, you left school with student loan debt. According to The Institute for College Access & Success, graduates have $29,200 in student loans, on average. Depending on your repayment term, you could be in debt for a long time. In fact, you could make payments for anywhere from 10 to 30 years.
Having such a large burden on your shoulders can cause you to put off other goals, like starting a business or buying a home. To free yourself from your student loan debt, think of repayment strategies to pay off your student loans as soon as possible.
If you’re determined to become debt-free, here’s how to pay off your student loans by 2025.
1. Create a budget
To pay off your student loans early, you need to have a complete picture of your finances, so you know exactly how much money you have to work with. Creating a monthly budget is an essential first step.
You can use programs like Mint or You Need a Budget (YNAB) to craft a budget and track your spending. Hopefully, you make more money than you spend each month. If that’s not the case — or if money is tight— you’ll have to make some changes to your lifestyle.
2. Cut Corners
To free up more money for debt repayment, you’ll have to take a hard look at your expenses and make some significant cuts. These life changes are not just for recent college students or those just starting out in their careers. If you’re committed to changing your financial situation in a short amount of time, some drastic life changes may be called for. Some things to consider include:
- Getting a roommate: While having a roommate may not be ideal, it can be a worthwhile decision. Considering that the average one-bedroom apartment costs $1,025, getting a roommate can help you save over $500 per month. That savings could make a big dent in your student loan balance.
- Taking public transportation: If possible, skip buying a car and rely on buses and trains, instead. You’ll be able to save money on a car payment, insurance, and repairs for a vehicle.
- Moving to a cheaper area: While moving to a more affordable area isn’t feasible for everyone, it can be a great way to save money. Moving to a less trendy area or even to another state can help you drastically reduce your living expenses.
>> Related: U.S. Cities With the Most Student Loan Debt
- Cooking at home: According to the Bureau of Labor Statistics, the average American spends $3,469 per year on food consumed away from home, such as restaurants or fast food locations. If you skip eating out and brown-bag your meals, you could save thousands.
- Negotiating bills: You’re probably paying more than you need to for your cell phone, cable, and internet. You can use a service like Trim to negotiate your utility bills for you, reducing your monthly expenses.
3. Increase Your Income
Exploring ways of increasing your income isn’t just for new college graduates. Even if you’re gaining a firm foundation in your career and just want to attack your student loan debt with voracity, putting in extra work hours could accelerate your financial goals.
With a side gig, you can earn a significant amount of money. According to a BankRate survey, the average side job earns an individual $1,122 per month — which can make a big difference in knocking down your student loan debt. Here are some ideas to help you get started:
- Deliver groceries: If you have a car and a smartphone, you can make money delivering groceries for services like Shipt or Instacart. Depending on your location and speed, you could make up to $22 per hour.
- Rent out extra space: If you have a spare bedroom, closet, or empty garage, you can earn cash by renting out your extra space to locals who need to store items with Neighbor.
- Tutor online: If you have a computer and reliable internet, you can earn money by tutoring online. With services like Tutor.com and Chegg, you can make up to $20 per hour.
- Assemble furniture: If you have a knack for assembling Ikea furniture or toys, you have a lucrative side hustle. You can find clients with TaskRabbit or Takl.
- Walk dogs: If you love dogs, you can earn an hourly fee for walking them while their owners are at work. Create an account on Rover or DogVacay to get started.
- Work overtime: Public service officials, medical professionals, and educators can make a substantial amount of money on the side by working overtime.
- Offer consultation services: If you’re a savvy marketer or have a knack for e-commerce, create a side business of setting up social media accounts for local businesses.
4. Research Student Loan Repayment Assistance Programs
Depending on your major and location, you may qualify for student loan repayment assistance.
For example, highly qualified teachers who teach for at least five years at an eligible school can receive up to $17,500 in loan help through Teacher Loan Forgiveness, a federal program.
Healthcare providers in Pennsylvania can receive up to $100,000 in student loan aid through the state’s Primary Care Loan Repayment Program. In exchange, participants must agree to a service term in a high-need area.
In Florida, lawyers who work for a legal aid organization can receive up to $5,000 per year through the Loan Repayment Assistance Program.
To find programs you may qualify for, check out the federal government’s list of forgiveness programs, and visit your state’s Department of Education website.
5. Use Windfalls Strategically
Using windfalls — unexpected influxes of cash — strategically can cut off years from your loan term.
For example, the IRS reported that the average tax refund in 2019 was $2,860. To put that number in perspective, let’s say you had $30,000 in student loans with an interest rate of 5% and ten years left in your repayment term. If you made a lump sum payment of $2,860, you’d pay off your student loans 14 months early. And, you’d save $1,722 over the length of your loan.
6. Consider Student Loan Refinancing
If you’re determined to pay off your debt as quickly as possible, student loan refinancing can be a smart strategy.
To refinance student loans, you work with a private lender like ELFI* to take out a new loan for the amount of your existing debt. The new loan has different repayment terms than the old ones. You’ll have a new interest rate, loan term, and minimum monthly payment.
If you have good credit and steady income, you could qualify for a lower interest rate and save money.
Let’s say you had $35,000 in student loan debt at 7% interest with a 10-year repayment term. By the end of your repayment term, you’d pay a total of $48,766. Interest charges would cause you to pay back $13,766 more than you originally borrowed.
If you refinanced your student loans and qualified for a 10-year loan at just 5% interest, you’d repay $44,548. Refinancing your debt would help you save $4,218.
ELFI’s Student Loan Refinance Calculator can help you determine how much you could save by refinancing.
7. Avoid Lifestyle Inflation
As your career advances and you start to pay off some of your loan debt, you might be tempted to splurge on a new car, bigger apartment, or fancier electronics to reward yourself. However, try to avoid the urge. Instead, allocate any extra money you have toward your loan payments. You’ll pay off your student loans faster, so you can become debt-free and enjoy more freedom.
The Bottom Line
While your debt may be stressful, you can conquer it by coming up with detailed student loan repayment strategies. With some sacrifice and hard work now, you can eliminate your debt years ahead of schedule.
If you decide to refinance your student loans, use ELFI’s “Find My Rate” tool to get a rate quote, without impacting your credit score.
*Subject to credit approval. Terms and conditions apply.
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