Best Ways to Pay off student loans

Refinancing student loans can help you pay off student loans fast without making extra payments. Refinancing means replacing multiple student loans with a single private loan at a lower interest rate. To speed up the loan, choose a new loan term that is lesser than your current loans.

Opting for a shorter term may increase your monthly payment, but you will pay your debt faster and save money on interest.

For example, if you refinance $50,000 from 8.5% interest to 4.5%, then you can pay off your student loans nearly two years faster. It will also save you about $13,000 in interest even when the payments stay about the same.

If your credit score is in the high 600s, you have a solid income, and your debt-to-income ratio is below 50%. then you are a good candidate for refinancing. 

Biweekly payment is a simple strategy to trick yourself into paying extra on debt. Pay half of your payment every two weeks instead of making one full payment monthly. This way you will end up paying an extra payment each year, saving dollars off your interest costs and saving time off your repayment schedule. 

If you’re paying only just the amount that becomes due each month, it’s going to take forever (also known as the original tenure of the loan) to pay off your student loan. Instead, if you’re making a healthy amount of money, consider paying a little extra each month so you can pay off the loan amount quicker, and save up on plenty of interest expense.

Pro tip: Sometimes, your lender will apply the additional amount to your next month’s dues. So, you’ll need to inform your lender and tell them that you intend to apply that amount to the current outstanding amount of the loan, and not defer its application to the next month's dues.

Paying off debt quickly comes with its share of financial sacrifices. If you’re living in a 3-bedroom apartment, rent one of those out. Imagine the kind of money you’ll be able to collect for paying off your student loan.

Are you dining at a fancy restaurant frequently? Consider cooking a wholesome meal at home. A little bit of healthcare, and a whole lot of cash saved. Bit by bit, with these sacrifices, you could put up a significant amount towards clearing your student loan dues.

Unless your loans are subsidized by the federal government, the interest will accrue when you are in school. This interest capitalizes when repayment begins, which means that your balance grows and you will have to pay interest on a larger amount. 

Make monthly interest payments during the occurring period to avoid capitalization. This will not speed up the payoff process drastically, but it will mean a smaller balance to get rid of.

If you have multiple student loans at different interest rates, then pay off the loan with the highest interest rate first. Many people pay equal amounts to all their loans. For example, if you have loans at 2%, 3%, and 5% interest rates, paying $100 each month to all the loans will take longer and your interest rate on a 5% loan will keep on increasing. So, pay off the entire 5% loan first and then move to loans at a lower interest rate.

There is no penalty for paying more than minimum or paying early when you have a student loan. But there is a caveat with prepayment. Student loan services that collect your bill, may charge the extra amount for the next month’s payment.

This advances your due date but it will not help in paying off the debt faster. Instead, try this method. Instruct your servicer to apply overpayments to your current balance, and ask them to keep next month’s due date as planned.

You can make an additional payment at any point in the month, or you can make a payment on the due date. Either way, you can save a lot of money.

The important thing to remember is – this is not what you’ll be doing forever. So if you feel frustrated about the idea of having to work two shifts at different jobs, it’s a temporary setup to kick that financial leverage out of your life so you can save up on interest and spend it on something nice.

There are plenty of side hustle options such as babysitting, driving an Uber, dog walking, etc. So strap on your big-boy pants and get to work so you can become debt-free ASAP.