After graduation, most new professionals are faced with the seemingly impossible task of paying back their student loans. Although it can be daunting, it is best to face your loan as quickly as possible to avoid missing payments or defaulting. Making a plan early can ease your anxiety and help you manage your finances. With a little planning and careful spending, you can pay less interest and get rid of your debt more quickly. Here are six tips to help you pay back your student loans faster:
- Draw up a budget. Calculating your cost of living will let you figure out how to approach your loan repayment. Figure out how much you need to spend on food, transportation, rent, utilities, laundry, and other essential life expenses every month, then subtract it from your monthly income. Come up with a spending plan, and then stick to your budget. Try to cut back on unnecessary expenses like trips to restaurants or going shopping “just because.” Spending cautiously will likely leave you with more money at the end of the month, which can be used to pay loans back or go into savings.
- Make more than one payment each month. If you lender lets you make bi-weekly payments, this can be a great way to reduce debt faster. When you make half payments twice each month, you end up making a total of 26 payments each year instead of only 12. This means you can make an extra payment every year without even realizing it. If bi-weekly repayments aren't an option for you, making extra payments when possible (or even just an extra $5 here or there) can greatly reduce your interest. Federal student loans do not have any penalties for prepayments, but ask your lender about prepaying your private student loans.
- Pay more. If your budget allows it, make bigger payments. When deciding how much more to pay each time, remember that it’s important to have a savings plan for emergencies. Although this is an effective way of repaying your student loans, think carefully before agreeing to any new terms.
- Look for grants. Because they’re considered gifts, grants usually don’t have to be repaid and some can be applied to your loans. They are available from a variety of sources, and usually involve meeting a requirement such as community service, having high academic achievement, suffering economic hardship, or possessing some other kind of special distinction.
- Consolidate your loans. By combining all your loans, you will only be responsible for one payment each month. Many people find it easier to only worry about one lender, and some end up with lower monthly payments. Depending on how much you owe, you could owe more interest overall if you consolidate, so talk to your lender about repayment terms. Additionally, federal student loans cannot be consolidated with private student loans. In most cases, the fixed interest rates of federal loans are lower than private interest rates, so it probably wouldn't be to your advantage.
- Enroll in auto-pay. Some lenders offer discounted interest rates to customers who set up automatic payments. Even if the difference seems small, it can add up to hundreds of dollars over the course of repayment. Many lenders will still let you make extra payments.