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Money

Pay Off Your Student Loans Faster With These 7 Tips

You don't need a six-figure income to conquer your debt.

Student loans aren’t just a nuisance plaguing today’s young college grads. More than 44 million Americans collectively owe $1.5 trillion in student loan debt. There’s a good chance that includes you.

Wouldn’t it be nice to finally get rid of that debt and be able to spend money on things you actually care about? The good news: There are a few strategies you can use to pay down those loans faster. Here are seven you can try.

1. Turn windfalls into extra payments.

One of the best ways to pay down your student loan debt fast is by making more than the minimum payments. Of course, “just pay more” isn’t realistic advice for most people. But hear me out on this one: Even a few one-off extra payments can have a significant impact on your student loan balance.

For example, you could apply part of your yearly bonus from work or a tax refund to your debt, said Brian Walsh, a certified financial planner and financial planning manager at SoFi. Or you could participate in a challenge like dry January or a no-spend month to come up with the extra cash. It might feel painful to put something fun like a cash windfall toward your student loan debt, but the results can be dramatic.

Don’t believe it? Say you have a $20,000 loan at 6 percent interest and 10 years left to pay it off. If you made just one extra payment of $100 each year, you’d pay off your loan five months sooner and save $315 in interest.

2. Split your payments in two.

Another trick you can use to pay off your loan faster is dividing your monthly payment into two. For example, if you have $300 due at the end of every month, make one payment of $150 on the 15th and a second payment of $150 on the 30th.

“This little trick could knock off an entire year of payments.”

- Sean Moore, certified financial planner

Not only can this make payments a little easier to manage, since most people get their paychecks every other week, but “paying half every two weeks equals one extra payment made each year without even noticing the difference,” said Sean Moore, a certified financial planner and founder of SMART College Funding.

That’s because, on a monthly schedule, you’d make 12 payments per year. However, splitting payments among 26 weeks (52 weeks in the year, divided by two), you end up with 13 months’ worth of payments over the same time period.

“On a typical 10-year repayment schedule, this little trick could knock off an entire year of payments (and interest)!”

3. Sign up for auto-pay.

Though it won’t have the most dramatic impact on your student loan debt, signing up for automatic payments can knock off a bit of interest and help you put more cash toward the principal balance.

This tactic allows your student loan servicer to automatically deduct your payment from your bank account each month. Besides ensuring that you pay on time and never miss a payment, some lenders may also give you a discount just for enrolling,” said Janet Alvarez, a personal finance expert at Wise Bread. Usually, that discount is 0.25 percent.

4. Refinance.

If you have a steady income and good credit, you might qualify to refinance your student loans. Refinancing involves taking out a new loan and using the funds to pay off the old loan. Usually, people refinance their loans to achieve a new term length, a lower interest rate or both.

For instance, you might refinance a 10-year student loan to a term of seven years. It would result in higher monthly payments, but you’d pay the loan off faster and save money on interest. And if you can refinance to a lower interest rate as well, more of your money will go toward paying down the balance as fast as possible.

Let’s take our $20,000 loan example from above. With 10 years left at 6 percent interest, your monthly payments would be $222.

Now let’s say you refinance to a slightly lower rate of 5 percent. Your bill would drop to $212. Not a huge difference, sure. But what if you kept paying $222 each month despite the new lower bill? You’d knock off six months and $335 in interest from your loan. Now imagine what would happen if the interest rate difference was even bigger.

Travis Hornsby, founder of Student Loan Planner, suggests creating a refinancing ladder to maximize your savings. “The way you do this is start with a payment you can afford pretty easily, say, a 10- or 15-year loan. Pay extra when you have extra, and you’ll cut down the amount that you owe rapidly,” Hornsby explained. “After a couple of years, you can refinance again to a seven-year loan, often with the same payment but with a lower interest rate. Finally, you could refinance one more time to a five-year loan before you finish paying off the entire amount.”

Keep in mind that you should work with a lender that doesn’t charge loan origination fees, which might cancel out interest savings. It’s also a good idea to weigh the risks of refinancing federal student loans, because doing so would change them to private loans and permanently forfeit federal protections such as income-driven repayment and forgiveness options.

5. Join a company that offers repayment assistance.

If you’re looking to change jobs, it’s worth looking into companies that help pay student loans as a benefit.

“These programs will give you money toward your student loans simply for working at the company.”

- Adrian Nazari, CEO and founder of Credit Sesame

“More and more employers are embracing an employee benefit called student loan repayment assistance,” said Adrian Nazari, CEO and founder of Credit Sesame. “Unlike tuition reimbursement, where you get paid for going to school, these programs will give you money toward your student loans simply for working at the company.

Only a small percentage of companies currently offer this perk, but those that do include Fidelity, Aetna and Staples. “The amounts vary from as little as $500 per year to $10,000 per year,” Nazari said.

6. Volunteer.

According to Nazari, there are organizations that offer student loan repayment assistance in exchange for working on nonprofit projects. For example, SponsorChange and similar organizations match volunteers who have sought-after skills with sponsors who fund student loan payments for each project completed.

“You do need to adhere to their guidelines and successfully complete the program according to their requirements in order to qualify for loan repayment assistance,” he said. “But it can be a great way to give back while making a dent in your student debt.”

7. Pay according to your personality.

Finally, if you have more than one loan to tackle, it helps to follow a repayment strategy that aligns with your personality. According to Willie Anderson, who advises clients and writes on various financial topics, there are two main methods for debt repayment: The debt snowball and debt avalanche.

The debt snowball method is ideal for people who need to experience wins right away. “With this strategy, you’ll begin paying the smallest balance off first,” Anderson said. “Continue to make the minimum payments on your other accounts and put as much money as you can towards the smallest balance.” Once the smallest balance is paid off, combine the amount you were paying on that balance with the minimum payment on your next-smallest balance, and so on. “This strategy can help keep you motivated and encouraged since you should start to see some results right away,” Anderson said.

If you’re more about saving as much money as possible, you might want to give the debt avalanche a shot. “With this method, you throw the largest payment you can at your highest-interest-rate debt every month, while paying the minimum payments on your other debts.” By focusing on interest rates rather than the balances, you save more money overall.

A final thought:

Keep in mind that as annoying as student loan debt is, it might not always be the most urgent financial matter to address.

“Before aggressively paying down your student loans, you should make sure you paid off high-interest debt such as credit cards or personal loans,” said Walsh. “You should also make sure you are saving enough for your long-term goals,” he said ― think retirement ― since, over time, the returns from investing have been higher than the interest rate most people pay on student loans.

So if you have most of your financial ducks in a row and your student loans are the last thing holding you back, by all means, pay them off as fast as you can.

Highest-Paying College Diplomas: Forbes