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Paying off student loans requires time, hard work, and money. Fortunately, there are many options you can choose from to pay off your student loans faster. By trying various methods, you experience how to pay loans based on what works for you. Here is a guide about the best ways you can adopt to pay off your student loans.
Editor’s Note: read how I paid off my massive $77,000 student loan debt. I used many of the methods described here
1. Pay more than the minimum payment
The simplest strategy is to make extra payments when possible. You don’t have to pay double or triple your minimum payment, but you could just add on to the regular payment.
Paying more than the minimum will help pay down your principal amount and not just the interest. You should know that the lower the balance, the lower that interest will accrue on the payment.
You should ensure that your loan service is aware that the extra payment you made was to clear the principal amount.
2. Adopt the right repayment plan
The Federal Government offers various repayment plans for federal student loans such as the income-driven repayment (IDR) plan. This plan can be chosen by those who are finding it difficult to make payments regularly. The IDR plan has an increased grace period with the default 10 years repayment period. However, it may not be suited for those who want to make payments sooner and pay off the loans faster.
Another option is that you could also choose to consolidate your student loans in which the period to pay back is lengthened to about 25 years resulting in a lower payment. Keep in mind that the interest is piled up over the lengthy period and you could end up much more than the original balance.
3. Try for the Student Loan Forgiveness
You could aim at qualifying for the Student Loan Forgiveness program. This program forgives loans from being repaid after a certain period of time to public service workers at government sectors or non-profit organizations. Working as a doctor, lawyer, nurses, volunteers, and government employees are automatically eligible for loan forgiveness. There are different conditions for private loans to be forgiven such as a death or permanent disability.
4. Consider consolidating and refinancing student loans
Another effective method to choose is by consolidating the student loans. You could combine all the federal loans into one big loan where you get a new interest rate. This helps in making lower monthly payments over a long period chosen at your convenience. This also helps in managing your loans and not worry about multiple due dates. Keep in mind the disadvantage of consolidating loans is that this could result in paying more interest on the total balance due to the long repayment period.
Refinancing Student Loans is another effective option where all the private loans are combined into one big loan with a fixed or a variable interest rate. This is one of the most popular methods adopted by borrowers with good credit. The interest rates are relatively higher but it could be helpful to clear the loan sooner by making large payments at a lesser period.
5. Use the interest rate reduction
As you strategize on saving and clearing your loans faster, you can use the interest reduction of about 0.25% offered on the private student loans by many loan servicers.
You can check for this option when you enroll yourself to an automatic monthly payment.
You could also make extra additional payments combined with this option to pay off your loans faster.
6. Take advantage of the tax deduction and credits
While you are making regular monthly payments, you qualify for a student loan interest deduction on federal taxes of up to $2,500 each year for the interest you pay. However, a tax credit might be more valuable than a tax deduction where a $2,500 tax credit will save you more than a $2,500 deduction will.
You qualify for a tax credit at times when you’re paying for tuition for grad school as there are no specific tax credits related to student loans.
7. Enroll in autopay or recurring payments
Autopay is generally a good way to make payments easier and not worry about forgetting the due dates. Your loan servicer can also offer a reduction in the interest rates with this benefit.
An auto-pay deduction is to let your services deduct the loan amount automatically from your bank account.
8. Consider biweekly payment
A biweekly payment is the payment of loans every other week, i.e., making half a payment in the first two weeks of the month and the other half payment in the last two weeks of the month. Instead of making 13 payments you make 26 payments. This is a great way for those who cannot pay the full amount on the due date. You can use this strategy to end up paying 2 extra half payments every year.
9. Make a budget
Preparing a budget to manage your finances may sound tricky, but you should make a list of all your expenses and the money flow to keep track. You could start saving money through this process and progress towards making extra payments to clear debts sooner.
10- Pay capitalized interest
The capitalized interest is the amount added to the total amount during your school or a forbearance or deferment period. When you make monthly payments while the interest is accrued, then you could save the amount to be paid on interest and lead to paying off your loans faster.
Now you know the most effective methods you can adopt to pay off your debts sooner. Paying off the student loans may sound easier but adopting them in the right way will make your life easier. Planning and strategizing during such financial situations can help you keep track of your expenses and money flow.
You could also read an article on getting motivated to pay off student loans in an accelerated way through necessary steps.
Author’s Bio: I’m Rakshitha.N, a financial expert writer at The College Monk. My aim is to create easy guidelines to help acquire solutions without economical constraints.