Guest Post: We have a guest post today from Drew Cloud who started The Student Loan Report when he found it difficult to find student loan information in one place. He now regularly writes about the latest student loan news as well as advice articles for those in college as well as for graduates working to repay their debt.
While college might have been fun, student loan payments are not. For this reason, many college graduates want to repay their loans in a “New York minute”. Since most college graduates don’t have a fortune sitting in the bank upon graduation, it takes a few years to pay back their loans. These time-tested tactics will help you develop a timeline to consistently make your monthly student loan payment. On your way to freedom!
#1: Live Within Your Means
The easiest way to accomplish any goal is to spend less than you earn. For example, if you earn $4,000 every month, only spending $3,999 means you have an extra dollar each month. Try to keep your normal monthly expenses to a minimum and use that extra money to make extra loan payments. Tracking your spending on a weekly or monthly basis can make this task much easier.
Ways to reduce your monthly expenses include getting a roommate, canceling the cable tv subscription, or bringing a lunch to work. After living on a cash-strapped budget during your college years, there will be some “lifestyle inflation” but keeping it to a minimum means you will become debt-free sooner and have more future financial flexibility instead of still making the monthly loan payment.
#2: Move to a Low Cost-of-Living Area
If you have several job offers with similar salaries, you may consider choosing the job and area with the most reasonable cost of living. For example, $35,000 is going to go a lot further in the Midwest than in Manhattan. There are several other factors to consider like potential career growth, but, one of the easiest ways to get out of debt sooner is to live in a cheap city and use the savings for extra loan payments.
Even if you can’t move, choose a cheaper apartment like a one bedroom instead of a two bedroom. Or, opt to live in a cheaper part of town where you are still close to work and friends, but don’t necessarily have to pay the highest prices for rent.
#3: Pursue a Side Hustle
If you have the free time, you might think about earning a second income. Some ideas include becoming a freelance graphic designer or writer, monetizing a hobby, or walking other people’s dogs while they work or travel. Even if you only do it for one evening a week, the extra money will add up.
#4: Make Extra Loan Payments
See a theme yet? If you have disposable income, dedicate a portion of it to making an extra loan payment each month. Even if it’s only $50, you can save hundreds of dollars in total interest because you pay off the balance quicker than just making the minimum payment.
Take a second to use a student loan prepayment calculator to see how much you can save by contributing a few extra dollars every month.
#5: Enroll in a Federal Repayment Plan
If you have federal student loans and a low salary, you might be able to qualify for an income-based repayment plan that can cap your monthly payment at 10% of your income. It’s also possible with these plans to enroll in loan forgiveness plans that will forgive any remaining balance after 10 or 20 years of payments.
#6: Refinance Private Student Loans
You can also refinance your student loans for a lower interest rate. Another possibility with refinancing your student loans is to extend your repayment term to 15 or 20 years. This second possibility can potentially cost more in total interest, but, it’s better than missing payments and defaulting on your student loans. And, you can make extra payments on any refinanced student loan without penalty, so once your finances improve you can make extra payments for free.
In addition to managing your monthly payments, there are no additional application or origination fees to refinance your student loans. And, some lenders will also allow you to refinance your federal loans as well, which can save you money if the refinanced rate is lower than the existing loan interest rate.
Cross the Finish Line
Whether you are cash abundant or cash poor, making a budget and setting aside as much extra money as possible can help repay your loans sooner because you will pay less interest. Private refinancing and federal repayment plans can also allow you to still repay your loans, even if it takes longer than you desire. The important thing is to make a plan to make the monthly payment every month to avoid any additional fees or penalties that make the loan more expensive.
Max: Thanks Drew for the tips shared above. I have personally applied #1, #2, #4 and #6 to get rid of my student loan debt in less than 5 years.
Readers, have you applied any of these tips to your student loan debt? Do you have any other suggestions for someone still struggling with student loan debt? Share your thoughts and comments below!