Introduction
Student loans are a money pit, typically taking years and costing you thousands in interest. Yet with proper planning, you can pay off your student loans sooner and save yourself tens of thousands of dollars in interest. If you’re proactive, manage your finances carefully, and use different repayment schemes, you can be debt-free much more quickly than you can imagine.
This manual will discuss several methods to speed up your loan repayment with less interest expense. If you are new to repayment or have been repaying for some time, these tips can enable you to pay off your loans faster.
1. Make More Than the Minimum Payment
One of the best things you can do to pay off your student loans quickly is to pay more than the minimum. Only paying the minimum will keep you in debt for a longer period and enable interest to build up over the years. Even modest extra payments can save you a huge amount in the end by paying off less total.
How to Do It:
- Put excess funds towards: Every time you get excess cash, like from tax refunds, work bonuses, or gifts of money, deposit that sum toward your student loan.
- Round up each payment: If you pay $250, pay $300. That additional $50 might seem insignificant, but when added together, it ends up lowering the amount owed over the years in a big way.
- Establish automatic payments: Making additional payments automatic keeps you on track and prevents you from spending the money elsewhere.
By paying more than the minimum, you pay off the principal amount sooner, which decreases the total amount of interest paid over time.
2. Refinance Your Student Loan for a Lower Interest Rate
Refinancing student loans means you exchange your existing loan for a new one at a lower interest rate. This can save you money on interest and also reduce your repayment period.
Things to Consider Before Refinancing:
- Check your credit score: Having a high credit score gives you a better chance of getting a lower interest rate.
- Shop around among several lenders: Various lenders have different interest rates and repayment periods, so it’s necessary to compare.
- Think about losing federal benefits: Refinancing federal student loans into a private loan results in losing federal benefits, including income-driven repayment plans and loan forgiveness programs.
If you can refinance at a substantially lower interest rate, you may save thousands of dollars in interest over the course of your loan.
3. Pay Biweekly Rather Than Monthly
Rather than paying once per month, make biweekly payments. This is a simple strategy that can allow you to make an additional payment per year, which pays down your loan faster.
How It Works:
- Instead of paying $400 once a month, you pay $200 every two weeks.
- Since there are 52 weeks in a year, you will end up making 26 half-payments, which equals 13 full payments instead of 12.
- This extra payment helps lower the principal balance and reduces the total interest paid.
Although this approach does not involve significant additional payments, it will substantially accelerate your loan repayment.
4. Leverage Employer Student Loan Repayment Assistance
Numerous employers these days incorporate student loan repayment assistance in their employee benefits package. If your employer offers this benefit, it can substantially pay off your loan without your additional contribution of funds.
How to Maximize Employer Benefits:
- Verify whether your employer provides student loan repayment benefits and learn about the requirements.
- Optimize the benefit by making sure you get the maximum amount they provide.
- If you’re in the process of looking for a job, give preference to companies that offer student loan benefits as part of their compensation package.
Employer help can be an excellent means of paying off student loans quicker without affecting your budget.
5. Apply Windfalls and Surprise Money to Pay Off Loans
Windfalls—surprise money like tax refunds, bonuses, or inheritance funds—can be applied to pay lump sums on your student loans.
Ways to Use Windfalls:
- Rather than using a tax refund to make frivolous buys, apply it to the payoff of your loan principal.
- Use work bonuses or performance awards to make extra payments on student loans.
- If you find yourself unexpectedly being given money gifts, use them to pay off your loan.
Though it might be tempting to invest windfalls on vacations or high-end products, applying them to loan repayment saves you a lot of time for financial independence.
6. Eliminate Unnecessary Expenses and Shift Savings to Loan Repayments
By doing small things with your spending behavior, you can release additional funds to apply towards your student loans.
Ways to Cut Costs:
- Cut dining out: Eat at home more frequently rather than eating out.
- Cut unused subscriptions: Many individuals subscribe to streaming services, gym memberships, or other subscriptions that they hardly ever use.
- Use public transport: If possible, using public transport rather than driving a car can save thousands each year.
- Shop smart: Purchase food and necessities in bulk, take advantage of coupons, and apply discounts.
Saving even $100 a month from unnecessary spending into your student loans can save you thousands of dollars in interest and reduce your payoff period.
7. Investigate Student Loan Forgiveness Programs
Some federal and state programs offer forgiveness of student loans for qualifying borrowers. If you meet the requirements, this can dramatically decrease your loan debt.
Typical Loan Forgiveness Programs:
- Public Service Loan Forgiveness (PSLF): For government and non-profit workers after 120 qualifying payments.
- Teacher Loan Forgiveness: Up to $17,500 in forgiveness for teachers at low-income schools.
- Income-Driven Repayment (IDR) Forgiveness: Loans are canceled after 20-25 years of payments on an income-driven repayment plan.
If you are employed in public service or a qualifying field, these plans can assist you in paying off your student loans without having to pay the entire balance.
8. Increase Your Income with Side Hustles
Boosting your income from part-time jobs or side hustles can give you additional money to pay off a loan faster.
Side Hustle Ideas:
- Freelancing: Sell writing, graphic design, or programming services online.
- Ridesharing or delivery services: Become an Uber or Lyft driver or a food delivery driver to get extra money.
- Tutoring: Tutor students online or in-person in a subject area in which you specialize.
- Selling goods online: Resell unused garments, electronics, or handmade goods on eBay or Etsy.
If you invest the proceeds of a side hustle towards your student loan, you’ll be able to reduce your payment period significantly.
9. Keep Yourself Motivated and Monitor Progress
Student loan repayment can be a lengthy one, but without motivation, failure is inevitable.
Ways to Keep Yourself on Course:
- Use budgeting apps to track your loan payments and see your progress.
- Set realistic goals and celebrate small milestones.
- Join online communities or groups for motivation and support.
By staying consistent and celebrating your achievements, you’ll remain committed to your goal of becoming debt-free.
Taking Your Student Loan Repayment to the Next Level
If you’ve already put some of the strategies outlined above into practice and are seeking even more ways to speed up your student loan repayment, there are further tactics that can further cut your debt and interest charges. Below, we’ll discuss advanced techniques to assist you in staying ahead in your quest for financial freedom.
10. Consider Making Lump-Sum Payments Whenever Possible
While paying extra each month is effective, making occasional lump-sum payments can provide an even bigger impact. A lump-sum payment directly reduces your loan principal, which in turn reduces the amount of interest you’ll pay over time.
Best Times to Make Lump-Sum Payments:
- Upon receiving a tax refund: Don’t spend it somewhere else. Put it straight on your loan.
- When you receive a work bonus or commission: Invest part (or all) of your excess income in a lump-sum payment.
- When you receive an inheritance or money gift: If you find yourself with unexpected additional funds, placing them on your loan can make you repay years earlier.
A lump-sum payment can also considerably lower your loan balance, thus making it easy to repay the outstanding amount at a faster pace.
11. Use the Debt Avalanche or Snowball Technique
Two of the most popular strategies to pay debt aggressively are the Debt Avalanche Technique and the Debt Snowball Technique.
Debt Avalanche Technique (Optimal for Paying Less in Interest)
By using this strategy, you are concentrating on settling the highest-interest loan first with the minimum payments going toward the others. Once you’ve settled the highest-interest loan, you use those dollars to attack the next highest-interest loan. This approach will save you the most money over the long term since you are removing high-interest debt from the picture first.
Debt Snowball Method (Most Effective for Motivation)
With this approach, you begin by paying off the lowest loan first, no matter what the interest rate is. After you pay off the lowest loan, you take the funds you were using for it and put them toward the next lowest loan. This approach gives you psychological victories by rapidly paying off small debts, which can encourage you to keep going and pay off your loans.
Both strategies work—select the one most favorable to your economic and emotional conditions.
12. Consolidate Your Student Loans (If It Makes Sense)
If you owe more than one student loan, consolidating your loans into a single loan might make payments easier and in some cases, reduce your interest rate.
Pros of Loan Consolidation:
- Blends many loans into one and makes paying it back simpler.
- Can reduce monthly payments by lengthening the loan term.
- Could make you eligible for more favorable repayment terms, particularly for federal loans.
Drawbacks of Loan Consolidation:
- Lengthening the loan term could result in paying more interest in the long run.
- You may lose some benefits of federal loans, such as interest rate reductions or forgiveness programs.
- The new interest rate is a weighted average of your current loans, so it might not always be lower.
Consolidation works best if it streamlines repayment without much affecting the total cost of the loan.
13. Avoid Lifestyle Inflation
One of the largest errors individuals commit once they have completed school and entered the labor force is to inflate their spending as their earnings increase. This is referred to as lifestyle inflation—when you begin spending more simply because you’re making more.
How to Prevent Lifestyle Inflation and Pay Off Debt Quicker:
- Rather than spending the increased funds on a new car or apartment, maintain your expenses at the same level and apply the excess funds to loan repayments.
- Avoid making unnecessary luxury item purchases and stick to your financial objectives.
- Allocate a specific percentage of your income to extra payments on the loan (for example, 20% of a raise goes to your student loan).
By maintaining your spending within limits, you can apply your higher income to paying off loans sooner instead of taking on new debt.
14. Strategically Leverage Financial Windfalls
In addition to tax refunds and employment bonuses, there are other financial windfalls that can be utilized to accelerate student loan repayment. Some of these might include:
- Cashback rewards and credit card points (when managed responsibly).
- Side hustle income that brings extra money.
- Investment dividends or stock earnings (if you have any).
Rather than spending these windfalls on unnecessary things, using them to pay down your student loans can get you to debt freedom faster.
15. Live Like a Student for a Few More Years
If you can continue to live modestly even once you’ve got a full-time job, you’ll have extra money to put towards your student loans.
How to Live Like a Student and Save More:
- Keep living with roommates or family to save on housing.
- Minimize entertainment spending, such as eating out constantly or pricey vacations.
- Utilize second-hand furniture, thrift stores, and dollar shops to keep the expenses minimal.
Keeping costs low for just a couple more years can make you dedicate most of your salary towards repaying the loans and becoming debt-free much earlier.
