A Winnable Game Plan for Paying Off Student Loans
If you’re reading this, you probably have a few student loans with monthly payments higher than you’d like. While you might be on a set repayment plan, you’d also like to see that total loan balance go all the way down to zero in much sooner than 10 years.
And you’re certainly not alone in your debt. The average student loan debt for the class of 2017 shot up to an all-time high of $39,400. Looking at the big picture, Americans owe over $1.48 trillion in student loan debt spread among 44 billion borrowers—that’s $620 billion more than total credit card debt.
It seems we’re all in this together. It’s not a debt problem just you have to solve—it’s you and 44 billion other borrowers. To conquer your student loan balance in a shorter time span, you’ll need to create a student loan repayment strategy with some tactics set in place. To get you started, we’ve laid out a few tactics to pick and choose from so you can hit the gas pedal and get going.
Pay More Than the Minimum Payment
You may have thought about paying more than the minimum payment, but have you really considered it? Eliminating a few Venti iced lattes or one of your weekend bar tabs and funneling that money toward your student debt can have a greater effect than you’d think.
The best way to do this: out of sight, out of mind. Increase your automatic payments by $10 or $20. Start small and slowly increase it every month until you can comfortably pay that amount while managing your other finances.
Considering Consolidating and Refinancing
If you have multiple loans from different lenders, sometimes it’s hard to keep up with who you’re paying and how much you’re paying them. Consolidating them through a private consolidation loan from a lender or bank creates a streamlined process so you’re only making one payment each month.
On top of that, if you refinance some of your loans with a personal loan with lower interest rates, more of your money will go toward your student loan balance rather than the interest rate payments.
However, you should think carefully before you choose to consolidate or refinance with a lender or bank. When you switch from a federal student loan to a private student loan, you lose benefits, such as deferment, forbearance, and repayment options like the Income-Driven Repayment plan (IDR) or Pay As You Earn plan (PAYE). In addition, if you choose to work in public service or as a teacher, you’ll no longer qualify for loan forgiveness.
Avoid Spending Windfall Profits
Cash windfall, financial windfall, windfall profits—it has many names but only one meaning: cash that just happens fall in your lap. This can be in the form of lottery or gambling winnings, unexpected inheritance, a settlement from a lawsuit or insurance claim, works bonuses and more.
While you should never expect or predict a cash windfall to come your way, if and when it does happen, don’t spend it. Listen to that little voice inside your head and pay it towards your debts. This may seem like the most practical decision to make, but Bankrate reports that 70 percent of people spend all their cash within a few years when they receive a windfall profit.
Apply for a Job with Loan Forgiveness
Ever considered working in public service or as a teacher? Yes? Perfect. As a public service worker or teacher you can quality for the Public Service Loan Forgiveness (PSLF) Program. The public service sector offers different fields from a government organization to the Peace Corps or AmeriCorps to a nonprofit organization.
Once you’re in the position, the program forgives the remaining amount of your loans after you’ve made 120 payments. But you can’t just take the payment and ditch the position—the idea behind the program was to encourage more people to apply for positions in the public service field. According to the plan, you must remain employed in the position to receive the forgiveness.
Looking for even more ways to pay off your student debt faster? Stay tuned for our blog next month on creative ways to make higher payments to pay down your debt.