Student debt can be an immense financial strain, but there are ways you can combat it faster. Here are a few effective strategies.
Consider making biweekly loan payments and applying your “found money,” such as tax refunds or bonuses from work.
1. Make Extra Payments
If you receive a large bonus or raise at work, consider allocating some of your extra income towards paying down student loan debt. But be careful that any increase doesn’t compromise other financial goals such as retirement savings or investment returns.
Make it clear to your student loan servicer that you want the extra payment applied only to loans with high interest rates or small balances; otherwise, they could simply apply it as part of their next monthly payment cycle and speed up loan repayment.
Accelerating student loan payments may allow you to reduce interest costs, and improve your debt-to-income ratio, which lenders consider when evaluating applicants for credit cards or mortgages.
2. Start a Side Hustle
As part of your strategy to pay off student loans, pursuing a side hustle is an effective way to do just that – but be wary when choosing one! As there’s currently high demand for delivery drivers, this might be worth exploring as an option if driving is something you enjoy doing full-time and is feasible for you.
One effective strategy to add extra income is selling items you no longer need or reducing expenses in other ways, such as moving into a less costly apartment, forgoing meals out or purchasing secondhand clothing.
As part of your budget plan, set up your finances so you can live off of your primary income source while funneling any surplus money toward student loan payments. Also take advantage of debt consolidation or refinancing strategies that could save money in the long run.
3. Get a Raise or Bonus
As soon as you come into any unexpected funds – be they tax refunds, gifts or raises at work – set aside some to put toward paying off student loans and reduce interest charges over time. Doing this will make a tangible dent in what you owe and save on interest charges over time.
Be mindful that many loan servicers apply extra payments directly towards your next monthly bill instead of applying them towards reducing principal balance, so make sure yours applies prepayments directly towards reducing it.
Get your loans under control to help achieve other financial goals such as purchasing a home or saving for retirement. Don’t forget about refinancing student loans if it makes sense for you!
4. Make a Bi-Weekly Payment
One of the best strategies for paying off student loans quickly and affordably is biweekly payments. By splitting your monthly payment in half and sending in two smaller payments every two weeks, biweekly payments allow an extra thirteenth payment each year – effectively shortening its life and decreasing interest owed.
No matter whether your goal is saving for a major purchase or simply paying down debt faster, creating and following a budget can help identify where expenses can be cut back to have the greatest effect on balances. You could also take advantage of any unexpected gifts such as tax refunds to boost payments in order to decrease interest expenses quicker and reach debt freedom faster.
5. Take Advantage of Your Employer
Many companies now provide student loan repayment as a workplace benefit, including Abbott Laboratories which allows employees to use any unused PTO/vacation days towards student debt repayment and reduce its interest payment costs. Additionally, unlike retirement related benefits programs that may trigger federal and payroll taxes.
Becky combined her employer’s contribution toward her loans with the debt avalanche strategy to pay off her debt faster. She listed all her loans, calculated their interest rates, and prioritized paying off those with higher rates first – all within two years! This enabled her to reduce monthly payments significantly while saving thousands in interest charges.