6 tips to pay off your student loans faster
By Hanin Najjar
Gen Z is on track to be the most educated generation in the U.S., but as the cost of college education skyrockets, we’re on track to be in debt for a long time.
According to The Institute for College Access & Success, the average borrower owes $28,950 in student loans, with Gen Z having more college debt than millennials or any other generation.
A study by the One Wisconsin Institute found that, on average, student loans take 21 years to pay off (and even longer if one has grad school loans), even though they’re structured to be paid off in 10 years.
High-interest rates are keeping people in debt for longer since many don’t know how to work the system. So, here are some tips to pay student debt off so that it doesn’t haunt you for the rest of your life:
1. Get organized
The first step is to understand, in painstaking detail, how much money you owe. Start a spreadsheet with every single loan you have. Include information like whether it is a federal or private loan, the payment due dates and the interest rates.
2. Consolidate/refinance your loans
If you have multiple loans with different interest rates, you might want to consider consolidating or refinancing your loans. If you only have federal student loans, you can consolidate them all into one loan with one payment and one interest rate based on your average interest rates.
If you have a mix of federal and private loans, it might be worth it to refinance your loans with a private lender. This also combines all your loans into one loan with one interest rate, and if you can build a good credit score, the interest rate might be lower than your original loans.
Services like So-fi offer student loan refinancing.
3. Make a budget and automate payments
Figure out how much you make every month after taxes and what your expenses are. Once you have your budget figured out and know how much money is going toward your loans, automate the payments so that you don’t have to worry about missing a due date.
4. Make biweekly payments instead of monthly payments
Paying every two weeks may seem like it doesn’t make a difference, but you’ll actually be paying 13 months worth of payments instead of 12 over the course of the year. You can still pay the same amount every month, but split it into two payments. This helps you pay your loans off faster and can decrease the amount of interest you pay over time.
5. Figure out how to pay toward the principal of the loan
What the heck is the principal of the loan? Every loan is made up of two parts: the principal, which is the amount of money you took out in loans, and the interest on that money. When you pay your biweekly payments, that money goes to the entire balance that is made up of the principal and the interest. If you put any extra money toward your student loan debt, it will go to the interest and fees first, but if you put extra money toward the principal loan only, you will end up paying less in interest and pay your debt off faster.
But it might not be as easy as it seems. Loan companies make money off of interest so they will often try to make it hard for you to pay only toward the principal. If you can’t find the information online, call your loan company and don’t get off the phone until you get an answer for how to pay only toward the principal of the loan
6. Stick to the plan
You’ve made a plan, but a plan only works if you stick with it. Make sure you budget and have enough to pay your loan payments every month and do not default on your loans. If something big changes and you need to alter the plan, dedicate some time to researching and creating a new plan to stick to.
Reasons why you shouldn’t pay off your student debt early
Pay your biweekly payments! We’re not telling you to skip payments, but if you have extra money lying around it might be put to better use elsewhere than toward your student loans. Here are some situations where you shouldn’t put extra money toward your student loan debt:
Credit card debt
The interest rate on credit cards is wayyy higher than the interest rates on student loans. If you have extra money, pay off those credit cards ASAP!
Emergency fund
Make sure you have 3-6 months worth of expenses in your savings account. You don’t want to go into more debt if there is an emergency.
Invest
If, and only if, you have your credit cards paid off, you have an emergency fund and the interest on your student loans is less than 7%, consider investing. Investing will grow your money a lot faster than if it’s sitting in a savings account. Investing for the long term will also make you more money than you would lose in student loan interest.
BONUS -
Check out SheMade Digital’s Debt Tracker. Use it to organize your debts, create a plan to get out of debt with the least amount of interest, and know exactly when you will be debt free. Here’s to you getting out of debt and building wealth!
Email us at shemadedigital@gmail.com to tell us your experience with student loan debt.
