Student loan debt is a trap many former students are caught up in for a large portion of their adult lives. The longevity of the debt has a lot to do with deferments and paying the minimum amount of the loan.
The truth is that you should never pay just the minimum payment because it will take a very long time to pay off debt. You really need to cut into it as much as you can.
If you don’t think you can pay more than the minimum payment, there are some strategies you can use to free up income that can be applied toward the student debt that is crippling you. That way you aren’t like me when I was six years into paying off my student loan debt and wondering why the balance had barely been dented.
This amazing post is written by Jacob at Dollar Diligence. I know you all will love his posts about finances, and his topics range from whether millennials should save for retirement to his own money mistakes. Personally, I subscribe to Jacob’s posts via email, but you can also follow him on Instagram or Twitter! Here are his great strategies for paying down student loan debt.
Student Loan Debt Repayment Strategies
It is very important that you pay down your debt as fast as you can. Your student loans have an impact on such things as your debt-to-income ratio. The loans can make your ratio too high, which can make it difficult achieving a milestone like buying a house.
Plus, clearing out student loan debt quickly means you can free up your income much sooner. The money that’s freed up can go toward your savings account.
To achieve this, you can do several things.
Stop Bad Habits and Start New, Positive Ones
One thing is to stop with bad habits. If you like to dine out a lot, spend too much on entertainment, go out on too many expensive excursions with friends, hop in the car and travel when you feel like it, or spend too much on the grocery shopping, you can break these habits.
Couponing, hanging out with friends without spending a lot of money, minimizing trips, creating an entertainment budget and sticking to it, and dining out very little or not at all are doable. It may be rough at first, but you do get used to it. You have to keep telling yourself that you will adjust and will be much happier when you don’t have student loan debt standing in the way of your future.
Don’t Sacrifice Your Future
You also want to consider that opting for the auto debit of your minimum payment is sacrificing your future. If you are going to use autopay, you need to set it up with the extra amount you’re paying added in. Setting up auto payments takes away the ability to change your mind about the amount you’re paying at the last minute. You’re cutting down the principle when you do this.
You can also consolidate student debt. This could result in a rate reduction and better terms so long as you appear creditworthy to a lender. From there, you can try to pay more than the minimum, allowing you to eliminate the debt even faster.
If by some chance you ever receive a cash windfall, apply it toward your student debt. Unfortunately, not everyone gets a windfall, so tax refunds and other small financial boosts can be used to eliminate the debt. Although this may be hard to do because you don’t want to see the money disappear from your hands too fast, the reward from eliminating the student loan debt goes much further than the money you use to reduce what you owe.
Another option is taking a job that offers student loan forgiveness. The Public Service Loan Forgiveness Program is one way. If you are a teacher, you can take advantage of the teacher student loan forgiveness program.
Nonetheless, your chosen career choice may not qualify you for the student loan forgiveness programs. In that case, you could apply raises toward paying down student loans.
You also want to avoid repayment programs, if possible. It is nice to lower the payments if you’re struggling to make them as it is. Unfortunately, repayment programs like the Pay As You Earn program will stretch the term. Some former students have loan terms as long as 25 years. If you graduate college at the age of 22, your student loans wouldn’t be paid off until you’re 47.
Trim Down Your Budget
One thing that is going to help you tremendously is trimming your budget. I mentioned earlier that you can do such things as minimize time out with friends or cut your grocery bill. You can also do things like cut down on cable, reduce water usage, stop using air conditioning if you really don’t need it, and put on more clothes in the winter so you can turn down the heat.
It’s hard work, but you can do it when you make a commitment and focus.
Jacob is a self-proclaimed personal finance enthusiast and blogger. Catch up with him @DollarDiligence!